Option Valuation: A First Course in Financial Mathematics provides a straightforward introduction to the mathematics and models used in the valuation of financial derivatives. It examines the principles of option pricing in detail via standard binomial and stochastic calculus models. Developing the requisite mathematical background as needed, the text presents an introduction to probability theory and stochastic calculus suitable for undergraduate students in mathematics, economics, and finance. The first nine chapters of the book describe option valuation techniques in discrete time, focusing on the binomial model. The author shows how the binomial model offers a practical method for pricing options using relatively elementary mathematical tools. The binomial model also enables a clear, concrete exposition of fundamental principles of finance, such as arbitrage and hedging, without the distraction of complex mathematical constructs. The remaining chapters illustrate the theory in continuous time, with an emphasis on the more mathematically sophisticated Black-Scholes-Merton model. Largely self-contained, this classroom-tested text offers a sound introduction to applied probability through a mathematical finance perspective. Numerous examples and exercises help students gain expertise with financial calculus methods and increase their general mathematical sophistication. The exercises range from routine applications to spreadsheet projects to the pricing of a variety of complex financial instruments. Hints and solutions to odd-numbered problems are given in an appendix and a full solutions manual is available for qualifying instructors.

This is a lively textbook providing a solid introduction to financial option valuation for undergraduate students armed with a working knowledge of a first year calculus. Written in a series of short chapters, its self-contained treatment gives equal weight to applied mathematics, stochastics and computational algorithms. No prior background in probability, statistics or numerical analysis is required. Detailed derivations of both the basic asset price model and the Black–Scholes equation are provided along with a presentation of appropriate computational techniques including binomial, finite differences and in particular, variance reduction techniques for the Monte Carlo method. Each chapter comes complete with accompanying stand-alone MATLAB code listing to illustrate a key idea. Furthermore, the author has made heavy use of figures and examples, and has included computations based on real stock market data.

Business leaders are frequently faced with investment decisions on new and ongoing projects. The challenge lies in deciding what projects to choose, expand, contract, defer, or abandon, and which method of valuation to use is the key tool in the process. This title presents a step-by-step, practical approach to real options valuation to make it easily understandable by practitioners as well as senior management. This systematic approach to project valuation helps you minimize upfront investment risks, exercise flexibility in decision making, and maximize the returns. Whereas the traditional decision tools such as discounted cash flow/net present value (DCF/NPV) analysis assume a “fixed” path ahead, real options analysis offers more flexible strategies. Considered one of the greatest innovations of modern finance, the real options approach is based on Nobel-prize winning work by three MIT economists, Fischer Black, Robert Merton, and Myron Scholes.

A comprehensive guide to understanding the implications andapplications of valuing employee stock options in light of the newFAS 123 requirements Due to the new requirements of the Proposed Statement of FinancialAccounting Standards (FAS 123) released by the Financial AccountingStandards Board (FASB)-namely the fact that employee servicesreceived in exchange for equity instruments be recognized infinancial statements-companies are now scrambling to learn how tovalue and expense employee stock options (ESOs). Based on authorDr. Johnathan Mun's consulting and advisory work with the FASBconsulting projects with several Fortune 500 firms, ValuingEmployee Stock Options provides readers with a comprehensive lookat this complex issue. Filled with valuable information on binomial lattice andclosed-form modeling techniques, Valuing Employee Stock Options canhelp financial professionals make informed decisions whenattempting to ascertain the fair-market value of ESOs under the newrequirements. Johnathan Mun, PhD, MBA, MS, CFC, FRM (San Francisco, CA), is VicePresident of Analytical Services at Decisioneering, Inc., themakers of Crystal Ball analytical software. He is also the authorof Applied Risk Analysis (0-471-47885-7), Real Options Analysis(0-471-25696-X), and Real Options Analysis Course (0-471-43001-3),all of which are published by Wiley.

Supporting investment profitability analysis and decision-making with real option analysis is an issue of increasing interest among both practitioners and managers. This special issue of the Journal of Applied Operational Research (JAOR) presents some new progress in applying real option analysis and valuation to real world problems in a number of industries.

Inhaltsangabe:Abstract: Global competition, emerging technologies, and an ever increasing need for superior products in shorter time frames all contribute to drive companies to adopt new and innovative approaches to product innovation. Effective product innovation is imperative for the survival, growth and profitability of most design and manufacturing enterprises. In the current dynamic manufacturing environment, companies must innovate successfully if they wish to remain competitive. Product innovation is a complex, cross-functional and contingent, dynamic process, which is difficult to manage. Anticipating change and expeditiously responding to the dynamics of the business environment via product innovation are important precursors for achieving sustainable competitive positions and exceptional performance. The heart of a product innovation is its value. Traditional discounted cash flow approaches, such as net present value (NPV), have traditionally been the preferred methods for evaluating investments in product innovation. The traditional NPV method, which was initially developed to value bonds or stocks by passive investors, implicitly assumes that corporations hold a collection of real assets passively. Managerial choices (as delay, expand, switching etc.) are thus presumed to be limited to the initial decision. Therefore, traditional valuation methods undervalue the product innovation because they are unable to capture the value of management flexibility. Recently, real options emerged as an alternative to simplistic discounted cash flow methods. Real option valuation (ROV) values the managerial flexibility to make ongoing decisions regarding implementation of investment projects and deployment of real assets. ROV extends valuation models used to price financial options and applies them to investments in real assets. Black and Scholes developed the Black-Scholes model to value financial options that focus on factors affecting the value of the underlying financial asset over time. Proof by Cox, Ross, Rubinstein (1979), binomial tree model is simpler to understand for the practitioner and less elegant than Black-Scholes model. It uses the discrete mathematics to achieve the isomorphic results to the calculation used by Black-Scholes model. From an intuition point of view, the managerial flexibility is easy to understand. But, how much it is worth is most difficult or even impossible to think about and measure with the traditional [...]