Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
generalformulationofastockpriceprocessthatfollowsthe binomialisshownin FigureA12.3.Inthisfigure,Sisthe currentstockprice;thepric ...
Cd= Value of call if stock price isSd In a multiperiod binomial process, the valuation has to proceediteratively,thatis,starting ...
Δ = Number of shares in replicating portfolio. B= Dollars of borrowing in replicating portfolio. TheobjectiveistocombineΔshareso ...
If the stock price is 35 att= 1, then the call is worth nothing. Step2:Movebackwardstotheearliertimeperiodandcreate a replicatin ...
Thebinomialmodelprovidesinsightintothedeterminantsof optionvalue.Thevalueofanoptionisnotdeterminedbythe expectedpriceoftheassetb ...
When the price process is continuous (i.e., price changes become smaller as time periods get shorter), the binomial model for pr ...
Notethate−rtisthepresentvaluefactorandreflectsthefact thattheexercisepriceonthecalloptiondoesnothavetobe paid until expiration. ...
of the underlying asset that are needed to create the replicating portfolio, is called theoption delta. Model Limitations and Fi ...
Long-term options. Since it becomes impractical to estimate the present value of dividendsas the option life becomeslonger,wewo ...
date.Withoptionsonstocks,thisbasicallyrequiresthatwe value options to each ex-dividend day and choose the maximumoftheestimatedc ...
Step1:Ifthevarianceinln(stockprices)hasbeenestimated for the Black-Scholes, convert these into inputs for the binomial: whereuan ...
sharesoutstandingandbringsfreshcashintothefirm;both will affect the stock price. 21 Theexpectednegativeimpact(dilution) ofexerci ...
and this estimated value can thenbe used as an input to reestimate the warrant’s value until there is convergence. Black-Scholes ...
SubstitutingtheBlack-Scholesequationforthevalueofan equivalent call into this equation, we get: Thus,thereplicatingportfoliofora ...
6 Since the return on capital is the product of after-tax operatingmarginandthesalesturnoverratio,this approach allowsbrandnamec ...
12 Withabinomialmodel,wearriveatanestimateofvalueof $99.15 million. 13 Ifweownsomereservesinperpetuity,weshouldcapthe lifeofther ...
19 F. Black and M. Scholes, “The Pricing of Options and Corporate Liabilities,” Journal of Political Economy 81 (1973): 637–654. ...
CHAPTER 13 The Value of Control Whatisthevalueofcontrollingabusiness?Theanswerto this questionhaswide-rangingimplications forhow ...
totheownersofthebusiness.Consequently,whenwevaluea business,wemakeimplicitorexplicitassumptionsaboutboth whowillrunthatbusinessa ...
Thiscashflowwillreflecthowefficientlythefirmmanages these assets. 2.Expectedgrowthrateduringextraordinarygrowthperiod. Thevalue ...
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