Chapter 22 Corporate Finance 公司理財 機(jī)械工業(yè)出版社 Ross PPT課件.ppt

1、1,Chapter 22 Options and Corporate Finance: Basic Concepts,2,Executive Summary,Options are special contractual arrangements giving the owner the right to buy or sell an asset at a fixed price anytime on or before a given date. Stock options, the most familiar type, are options to buy and sell shares

2、 of common stock. Ever since 1973, stock options have been traded on organized exchanges.,3,Executive Summary,Corporate securities are very similar to the stock options that are traded on organized exchanges. Almost every issue of corporate bonds and stocks has option features. In addition, capital-

3、structure decisions and capital-budgeting decisions can be viewed in terms of options.,4,Executive Summary,We start this chapter with a description of different types of publicly traded options. We identify and discuss the factors that determine their values. We show how common stocks and bonds can

4、be thought of as options on the underlying value of the firm. This leads to several new insights concerning corporate finance.,5,Options,An option is a contract giving its owner the right to buy or sell an asset at a fixed price on or before a given date. Options are a unique type of financial contr

5、act because they give the buyer the right, but not the obligation, to do something. The buyer uses the options only if it is advantageous to do so; otherwise the option can be thrown away.,6,Options,Special vocabulary and important definitions: Exercising the Option Striking or Exercise Price Expira

6、tion Date American and European Options,7,Call Options,The most common type of option is a call. A call option gives the owner the right to buy an asset at a fixed price during a particular time period. The most common calls traded on exchanges are options on stocks and bonds. Example-call on IBM st

7、ock,8,Call Options,The value of a call option at expiration depends on the value of the underlying stock at expiration. The call is in the money, out of the money, at the money. The payoff on the expiration date of a call option.,9,Call Options,Figure 22.1 plots the value of the call at expiration a

8、gainst eh value of IBMs stock. It is referred to as the hockey-stick diagram of call-option values. Notice that the call can never have a negative value. It is a limited-liability instrument, which means that all the holder can lose is the initial amount of option fees.,10,Put Options,A put option c

9、an be viewed as the opposite of a call. It gives the holder the right to sell the stock for a fixed exercise price. The payoff of the put option.,11,Selling Options,An investor who sells (or writes) a call on common stock promises to deliver shares of the common stock if required to do so by the cal

10、l option holder. Notice the seller is obligated to do so. Why would the seller of a call place himself in such a precarious position? The answer is the seller is paid to take this risk.,12,Selling Options,Figure 22.3: The payoffs to sellers of Calls and Puts, and to Buyers of Common Stock. Notice th

11、at buying the stock is the same as buying a call option on the stock with an exercise price of zero. Because the exercise price is zero, the call holder can buy the stock for nothing, which is really the same as owning it.,13,Reading the Wall Street Journal,How these options are quoted in media, suc

12、h as Wall Street Journal? See the example of table 22.1.,14,Combinations of Options,Puts and calls can serve as building blocks for more complex option contracts. The strategy of buying a put and buying the underlying stock is called a protective put. It is as if one is buying insurance for the stoc

13、k. Figure 22.4 illustrates the payoff from buying a put option on a stock and simultaneously buying the stock.,15,Combinations of Options,Note that the combination of buying a put and buying the underlying stock has the same shape in Figure 22.4 as the call purchase in Figure 22.1.,16,Combinations o

14、f Options,Now, lets try the strategy of: (leg A) Buying a call (leg B) Buying a zero-coupon bond with a face value of $50 that matures on the same day that the option expires. What does the graph of simultaneously buying both Leg A and Leg B of this strategy look like? It looks like the far right gr

15、aph of Figure 22.5.,17,Combinations of Options,The far-right graph of Figure 22.5 looks exactly like the far-right graph of Figure 22.4. Thus, an investor gets the same payoff from the strategy of Figure 22.4, and the strategy of Figure 22.5, regardless of what happens to the price of the underlying

16、 stock. In other words, the investor gets the same payoff from the following two strategies:,18,Combinations of Options,1. Buying a put and buying the underlying stock. 2. Buying a call and buying a zero-coupon bond. If the above two strategies have the same payoffs, they must have the same cost. Th

17、is leads to the interesting result that:,19,Combinations of Options,Price of underlying stock + Price of put = Price of call + Present value of exercise price, or, equivalently,20,Combinations of Options,This relationship is known as put-call parity and is one of the most fundamental relationships c

18、oncerning options. It is a very precise relationship. From the parity, you can replicate the purchase of a share of stock by buying a call, selling a put, and buying a zero-coupon bond. This is a synthetic stock.,21,Combinations of Options,Covered-call Strategy Buy a stock and write the call on the

19、stock simultaneously. This conservative strategy known as selling a covered call.,22,Valuing Options,Bounding the Value of a Call Lower Bound: An option can not sell below stock price exercise price. Strategy: buy a call, exercise the call and sell stock at current market price. Upper Bound: The upp

20、er boundary is the price of the underlying stock. Strategy: buying the stock and selling the call.,23,Valuing Options,The factors Determining Call-Option Values Exercise price Expiration Date Stock price Key factor: The variability of the underlying Asset Interest Rate,24,Valuing Options,Factors Det

21、ermining Put-Option Values: Stock price Exercise price Interest rate Expiration date Volatility of the underlying asset,25,Valuing Options,Summary of Options values: Table 22.2,26,An option-pricing Formula,The value of an option is a function of five variables: The current price of the underlying as

22、set Exercise price Time to expiration Variance of the underlying stock Risk-free interest rate,27,An option-pricing Formula,NPV approach can not be used to determine the price of an option because of the unknown risk level. Black and Scholes attacked the problem by pointing out that a strategy of bo

23、rrowing to finance a stock purchase duplicates the risk of a call. Knowing the price of a stock already, one can determine the price of a call.,28,An option-pricing Formula,If we let the future stock price be one of only two values, we are able to duplicate the call exactly. This model is called a t

24、wo-state option model.,29,An option-pricing Formula,A Two-State Option Model Suppose the current stock price is $50, and the stock will either be $60 or $40 at the end of the year. Imagine a call option on the stock with a one-year expiration date and a $50 exercise price. Investor can borrow at 10%

25、. How to determine the price of the call ?,30,An option-pricing Formula,Consider two strategies: 1. buy the call 2. buy one-half a share of stock; borrow $18.18. As you can see, the cash flows from the second strategy match the cash flows from the first strategy. We are duplicating the call with the

26、 second strategy.,31,An option-pricing Formula,See the payoffs on page 626. The future payoff structure of the buy a call strategy is duplicated by the strategy of buy stock and borrow. That is, under either strategy, an investor would end up with $10 if the stock price rose and $0 if the stock pric

27、e fell. These two strategies are equivalent.,32,An option-pricing Formula,If two strategies always have the same cash flows at the end of the year, how must their initial costs be related? Same initial costs. Otherwise arbitrage happens. The costs of our strategy of buying stock and borrowing are: $

28、6.82, so the price of the call is also $6.82.,33,An option-pricing Formula,Determining the Delta The potential swing of the call price / the potential swing of the stock price The ratio is called the delta of the call. It means that the risk of buying one-half share of stock should be the same as th

29、e risk of buying one call.,34,An option-pricing Formula,Determining the amount of borrowing How did we know how much to borrow? Buying one-half share of stock brings us either $30 or $20 at expiration, which is exactly $20 more than the payoffs of $10 and $0, respectively, from the call.,35,An option-pricing Formula,Risk-Neutral Valuation We found the exact value of the option without even knowing the probability that the stock would go up or down! The current stock price already balances the views of the optimists and the pessimists. The option reflects that balance becaus