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Derivatives and Financial Engineering

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by

Nikolas Anastasiou

on 21 January 2015

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Transcript of Derivatives and Financial Engineering

Nikolas Anastasiou
Maria Papademetriou Lysioti
Kypros Kyprianou
Chara Acheriotou
Valuing Stock Call Options
Initial Data
$ 18.75
$ 35.00
5 yrs
6.2%
Riskless Investment
No implied "losses" from leaving Telstar
Fixed Return
Potentially limitless return
Stick with the company for 5 years
May get nothing
min
avg
max
post avg
recent avg
post weighted avg
0.19
0.34
0.83
0.37
0.42
0.3779
1.229
(
$
)
3.640
11.052
4.141
4.974
4.273
Total
(
$
)
3687.05
10918.50
33154.70
12423.57
14922.30
12819.36
Calculating the Future Value of Cash
Cash Bonus $5000
After tax $3600
(
28%
)
Riskless Investment for 5 years
6.2%
Annually compounded interest
Tax on earnings 28%
Assuming...
Future Value $4478.53
Derivatives and Financial Engineering
Sally's Dilemma
What should Sally do?
Gain/Loss in absolute terms?
Call Option PV - Cash, for each volatility
Share Price?
Future Value of Cash $4478.53
Break even stock price is
Probability of staying?
Probability of Sally staying
$
12819.36
$5000
Cash Bonus
Stock Call Option value
Full transcript