Convergence of Option Values under Incompleteness

1995 ◽  
pp. 365-384 ◽  
Author(s):  
Wolfgang J. Runggaldier ◽  
Martin Schweizer
Keyword(s):  
Option Values

Accounting for Employee Stock Options

2004 ◽  
Vol 18 (2) ◽  
pp. 135-156 ◽  
Author(s):  
Michael Kirschenheiter ◽  
Rohit Mathur ◽  
Jacob K. Thomas
Keyword(s):  
Stock Options ◽  
Financial Statements ◽  
Cash Flows ◽  
Stock Option ◽  
Share Price ◽  
Employee Stock Options ◽  
Deferred Taxes ◽  
Recommended Treatment ◽  
Option Values ◽  
The Common

Accounting for employee stock options is affected by whether outstanding options are viewed as equity or liabilities. The common perception is that the FASB's recommended treatment (per SFAS No. 123), which is based on the options-as-equity view, results in representative financial statements. We argue that this treatment distorts performance measures for three reasons. First, the deferred taxes associated with nonqualified options should also be included as equity, but are not. Second, since unexpected share price changes affect optionholders and equityholders differently, combining their interests provides an average earnings effect that is not representative for either group. We show that efforts to isolate the interests of common stockholders via diluted earning per share calculations (per SFAS No. 128) are inherently incapable of identifying wealth transfers between stockholders and optionholders. Finally, projections of future cash flow statements prepared under SFAS No. 95 overstate cash flows to current equityholders by the pretax value of projected option grants. We show that these distortions can be avoided simply by accounting for options as liabilities at grant and thereafter recognizing changes in option values (similar to the accounting for stock appreciation rights). Our analysis of stock option accounting leads to two, more general implications: (1) all securities other than common shares should be treated as liabilities, thereby simplifying the equity versus liability distinction, and (2) these liabilities should be recorded at fair values, thereby obviating the need to consider earnings dilution.

Canadian Ice Wine Production: A Case for the Use of Weather Derivatives

2007 ◽  
Vol 2 (2) ◽  
pp. 145-167 ◽  
Author(s):  
Don Cyr ◽  
Martin Kusy
Keyword(s):  
Jel Classification ◽  
Seasonal Temperature ◽  
Weather Derivatives ◽  
Wine Production ◽  
Option Values ◽  
Temperature Variable ◽  
Ice Wine ◽  
The Impact ◽  
Potential Use ◽  
Underlying Variable

AbstractWeather derivatives are a relatively new form of financial security that can provide firms with the ability to hedge against the impact of weather related risks to their activities. Participants in the energy industry have employed standardized weather contracts trading on organized exchanges since 1999 and the interest in non-standardized contracts for specialized weather related risks is growing at an increasing rate. The purpose of this paper is to examine the potential use of weather derivatives to hedge against temperature related risks in Canadian ice wine production. Specifically we examine historical data for the Niagara region of the province of Ontario, Canada, the largest icewine producing region of the world, to determine an appropriate underlying variable for the design of an option contact that could be employed by icewine producers. Employing monte carlo simulation we derive a range of benchmark option values based upon varying assumptions regarding the stochastic process for an underlying temperature variable. The results show that such option contracts can provide valuable hedging opportunities for producers, given the historical seasonal temperature variations in the region. (JEL Classification: G13, G32, Q14, Q51, Q54)

scholarly journals MEASUREMENT OF OPTION VALUES BY STATED CHOICE METHOD AND PROJECT APPRAISAL FOR LRT AND LOCAL RAILWAY

2011 ◽  
Vol 67 (5) ◽  
pp. 67_I_45-67_I_56
Author(s):  
Mitsuaki KAWABATA ◽  
Shoji MATSUMOTO ◽  
Kazushi SANO ◽  
Satoshi TSUCHIYA
Keyword(s):  
Stated Choice ◽  
Project Appraisal ◽  
Option Values ◽  
Choice Method

Outside option values for network games

2016 ◽  
Vol 84 ◽  
pp. 76-86 ◽  
Author(s):  
Julia Belau
Keyword(s):  
Network Games ◽  
Outside Option ◽  
Option Values

scholarly journals Numerical Valuation of American Basket Options via Partial Differential Complementarity Problems

Mathematics ◽  
2021 ◽  
Vol 9 (13) ◽  
pp. 1498
Author(s):  
Karel J. in’t Hout ◽  
Jacob Snoeijer
Keyword(s):  
Principal Component Analysis ◽  
Numerical Experiments ◽  
Complementarity Problems ◽  
Principal Component ◽  
Partial Differential ◽  
Basket Options ◽  
Basket Option ◽  
Option Values ◽  
Convergence Behaviour ◽  
Low Dimensional

We study the principal component analysis based approach introduced by Reisinger and Wittum (2007) and the comonotonic approach considered by Hanbali and Linders (2019) for the approximation of American basket option values via multidimensional partial differential complementarity problems (PDCPs). Both approximation approaches require the solution of just a limited number of low-dimensional PDCPs. It is demonstrated by ample numerical experiments that they define approximations that lie close to each other. Next, an efficient discretisation of the pertinent PDCPs is presented that leads to a favourable convergence behaviour.

CONSTANT ELASTICITY OF VARIANCE OPTION PRICING MODEL WITH TIME-DEPENDENT PARAMETERS

2000 ◽  
Vol 03 (04) ◽  
pp. 661-674 ◽  
Author(s):  
C. F. LO ◽  
P. H. YUEN ◽  
C. H. HUI
Keyword(s):  
Option Pricing ◽  
Algebraic Approach ◽  
Time Dependent ◽  
Model Parameters ◽  
Cev Model ◽  
Constant Elasticity ◽  
Constant Elasticity Of Variance ◽  
Pricing Options ◽  
Term Structures ◽  
Option Values

This paper provides a method for pricing options in the constant elasticity of variance (CEV) model environment using the Lie-algebraic technique when the model parameters are time-dependent. Analytical solutions for the option values incorporating time-dependent model parameters are obtained in various CEV processes with different elasticity factors. The numerical results indicate that option values are sensitive to volatility term structures. It is also possible to generate further results using various functional forms for interest rate and dividend term structures. Furthermore, the Lie-algebraic approach is very simple and can be easily extended to other option pricing models with well-defined algebraic structures.

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