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Call Option Definition: Learn with Examples and Explanations

Discussion in ' P2. Cart My Account Log In Sign up Free! Is the call value equal to value of equity?

Application of Option Pricing to Valuation of Firms | ACCA Qualification | Students | ACCA Global

In the provided answer, the c is substituted with value of equity and p is calculated. Do you see the inconsistency? Steve Jobs , Nov 7, Hi Steve, You have p.

David Harper CFA FRM , Nov 7, Apologies for the misstated formula. Let me write it again: V for value of firm, F for face value of debt, S for value of equity S is not Spot price anymore as it was in FRM1 ; and also r for risk free rate -Asking for value of p -Answer provided: V for value of assets, F for value of debt, c for value of call, p for value of put; and also r for risk free rate, -Asking for value of equity -Answer provided: Hi Steve, Interesting comparison, but they appear compatible maybe I am missing something: I might be missing something because I'm mentally little tired and haven't taken a break since long time, but this is how I see it: Steve Jobs , Nov 8, As the answer mechanics to question 2 don't require c, it's hard to identify the issue unless you want to copy the entire question, i'll be glad to look at the entire question, thanks,.

David Harper CFA FRM , Nov 8, Steve Jobs , Nov 9, Hi Steve, Can you copy down the first question as well?

Mysterious Finance By Palindrome : Debt and Equity Valuation using Option Pricing

What I wrote before was: Hi Jonathan, you don't have asset volatility which you want to price the call. Without asset vol, you need to infer call from the put.

Notice you can also use put call parity: Same result as what the question is looking for: David Harper CFA FRM , Nov 9, Steve Jobs , Nov 10, Steve Jobs - In the context of Merton, yes i.

David Harper CFA FRM , Nov 11, Steve Jobs , Nov 12, Okay but the FRM is clearly able to distinguish between Merton model i. One lemon question does not warrant that simplification. David Harper CFA FRM , Nov 12, I just came back from a public lecture organized by a business school which I enjoyed very much and excited to share few points.

Steve Jobs , Apr 1, David Harper CFA FRM CIPM said: Last edited by a moderator: Hi cdbsmith Thanks for sharing, great point of view! I think you mean "The problem with the Merton Model is that the stock equity becomes the call and the debt becomes the strike, which is difficult to process.? Here is one of our images: My favorite part of your post is "I think I may have some energy now.

Covered Call

David Harper CFA FRM , Apr 2, My mind was saying that the debt e. Thanks for helping out! I definitely like the comparative illustration you provided as it clearly demonstrates how the Merton Model is similar to a call. Unfortunately, we don't see illustrations like yours in the text books. That's why I made the comment that financial authors should put more effort in explaining complex financial concepts. To digress, I have a quick question: I've been reading through the Op.

Risk material and that stuff is totally dry. I mean, it's just pure text.

What can I expect to see on the FRM 2 exam in this area? I'm asking because I need to gauge how much effort I need to put forth in memorizing it. You must log in or sign up to reply here. Share This Page Tweet.

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