Black-Scholes Model Now what exactly is Black-Scholes Model? The Black-Scholes model came to be when Fischer Black and Myron Scholes underwent Research to find a better option pricing strategy in \cite{BS-1973}. The Black-Scholes Model is used to calculate the theoretical price of a European call or put option, ignoring any dividends paid during the options lifetime. The Black-Scholes model assumes that the option can be exercised only at expiration and that it requires both the risk-free rate and the volatility of the underlying stock price remain constant over the period of analysis. The Black-Scholes model also assumes that it follows a lognormal distribution, and hence the returns on the underlying asset are normally distributed.
The Black-Scholes equation was the mathematical justification for the trading that plunged the world's banks into catastrophe. It was the holy grail of investors. The Black-Scholes equation, brainchild of economists Fischer Black and Myron Scholes, provided a rational way to price a financial contract when it still had time to run. It was like buying or selling a bet on a horse, halfway through the race. It opened up a new world of ever more complex investments, blossoming into a gigantic global industry.
In this section; the reporter well define some key words and terminologies and also will mention some advantage and disadvantage of debt and equity issues in finance and the third section will discuss why debt offerings are much more common that equity offerings and finally will conclude the discussion. Debt offerings are always referred to or defined as a note or bond that is offered by a company which needs to raise capital which means that the company needs to get some additional capital (Gitman, Joehnk & Smart, 2011). The other important method by which to raise funds is through the offering of stock, or equity. If a company stiff tries to use a debt, as against to an Equity, the business does not weaken the ownership or income of the
The model decided that the economic distress of the bank became not fine and verified feasible insolvency. As in line with the overview by Brown Bridge (1998), a massive part of the bank failure have been introduced on with the aid of non-performing loans and advances. In the more a part of the instances, non-performing loans and advances come to be bad
LM CURVE Background: John Maynard Keynes published Keynes’s General Theory which is also known as The General Theory of Employment, Interest and Money in February 1936. Soon after the publication, J.R. Hicks published an article that attempted to integrate the insights he felt were useful in the General Theory and proposed his IS-LM curves model based on his studies on Keynes’s General Theory. The IS-LM Model: IS stands for investment to savings and LM stands for the liquidity preference to money supply. The simplest version of the IS-LM model describes the macroeconomy using two relationships involving output and the interest rate. The model is presented as a graph of two intersecting lines.
Let’s see why. 1. The Study of Socio-Cultural Systems as a Whole 1.1 According to Structural-Functionalism Structural-Functionalism was developed in the early twentieth century and Radcliffe-Brown is considered its founding father. He sought to develop a theory distant from the diachronic description typical of evolutionism, understood as an account of changes in societies in the course of history. In order to do so he promoted a synchronic description “in which the
The use of such Index models also eliminates illogical or rather absurd results. The Single Index model (SIM) and the Capital Asset Pricing Model (CAPM) are such models used to calculate the optimum portfolio. Sharpe (1963) defined SIM as an asset pricing model which is purely arithmetical. The returns on a security can be represented as a linear relationship with any economic variable relevant to the security, for example in stocks the single factor is the market return. According to Sharpe the Single index model for return on stocks is shown by the formulae shown below; Rs-Rf = α + β (Rm- Rf) +ε.
Use of Baumol Model The Baumol model enables companies to find out their desirable level of cash balance under certainty. And this theory relies on the tradeoff between the liquidity provided by holding money (the ability to carry out transactions) and the interest foregone by holding one’s assets in the form of non-interest bearing cash. The main variables of the demand for cash are then the nominal interest rate, the level of actual income which resembles to the amount of desired transaction and to a fixed cost of transferring one’s wealth between liquid money and interest bearing assets. Evaluation of the model Useful in determining optimal level of cash
It was first developed in large part to understand how alternative exchange-rate regimes work and how the choice of exchange-rate regime impinges on monetary and fiscal policy (Floden, 2010). It is described as the dominant policy paradigm for studying open-economy monetary and fiscal policy (Obstfeld and Rogoff, 1996). The model is a close relative of the IS-LM, extending beyond it to the case of an open economy. Like the IS-LM model, the Mundell-Fleming model assumes a fixed price level and then shows the causes of short-run fluctuations in aggregate income (or, equivalently, shifts in the aggregate demand curve). The differing area is that the Mundell-Fleming model assumes an open economy whereas the IS-LM assumes a closed economy.
1 Commodity Derivative Market 1.1 Understanding Market Dynamics Derivatives are financial instruments used to hedge the risk associated with price fluctuation. Industries that are dependent upon the raw materials input or commodities they need, are significantly impacted by any price fluctuation of these commodities. Hence the companies operating in these industries use commodity derivatives where they trade in the basic raw materials input using standardize contracts in regulated commodity exchanges. Commodity exchange is a market where multiple buyers and seller trade commodities related contracts on the basis of rules and procedures determined by the exchange. Two types of trade are provided by the exchange – spot trade and forward trade.