Introduction to Corporate Finance

(avery) #1

Ross et al.: Fundamentals
of Corporate Finance, Sixth
Edition, Alternate Edition


VIII. Topics in Corporate
Finance


  1. Risk Management: An
    Introduction to Financial
    Engineering


© The McGraw−Hill^825
Companies, 2002

CHAPTER 23 Risk Management: An Introduction to Financial Engineering 799

FIGURE 23.13


Risk profile

A. The unhedged risk profile

P

V
Hedged
profile

B. The hedged risk profile

P

V
Put option
payoff

Original
profile

The hedged profile is created by purchasing a put option,
thereby eliminating the downside risk.

Hedging with Options

TABLE 23.2


Sample Wall Street
JournalFutures Option
Price Quotations

Source: Reprinted by permission of The Wall Street Journal,© 2001 Dow Jones &
Company, Inc., September 5, 2001. All Rights Reserved Worldwide.
Free download pdf