riskhedging - Enter the current value of the firm = $100.00...

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Hedged value 10% 20% 30% 40% 50% 80% 0.01% 0.78% 2.75% 5.34% 8.21% 85% 0.07% 1.48% 4.03% 7.03% 10.21% 90% 0.31% 2.55% 5.65% 9.00% 12.43% 95% 0.95% 4.06% 7.59% 11.22% 14.86% 100% 2.29% 6.04% 9.87% 13.70% 17.50%
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OPTION WORKSHEET: LONG TERM OPTIONS VALUING RISK HEDGING AS A PUT OPTION This program calculates the value of a long term option (> 1 year) adjusting for dividends using the expected dividend yield on the current value of the asset. Assumptions 1. All the assumptions underlying the Black-Scholes model apply 2. The dividend yield over the lifetime of the option is known and a constant. The user has to input the following variables 1. Current market value of the firm 2. Variance in the ln(firm value). This will be much lower than the variance in stock prices. 3. Minimum value: This is the value you want to make sure your firm does not fall below. 4. One-year riskless rate 5. Time to expiration on the option (Default is set to 1 year) Inputs relating the underlying asset
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Unformatted text preview: Enter the current value of the firm = $100.00 (in currency) Enter the percentage of that value that you want to set as th 90% Entet the annualized standard deviation in ln(firm value) 30% (in %) Inputs relating to the option General Inputs Enter the one year riskfree rate= 4.00% (in %) VALUING A LONG TERM OPTION/WARRANT Stock Price= $100.00 Annualized continuous riskfr 3.92% Strike Price= $90.00 Variance= 0.09 Expiration (in years) = 1 d1 = 0.631903588 N(d1) = 0.736275061 d2 = 0.331903588 N(d2) = 0.63001897 Value of risk hedging = 5.65% (as % of firm value) Aswath Damodaran: This is the value below which you want to insure the you never fall as a percent of the current firm value. If you enter 90%, for example, you will ensure that your firm value will never decline more than 10%....
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This note was uploaded on 12/01/2011 for the course FINANCE 350 taught by Professor Aswath during the Summer '10 term at NYU.

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riskhedging - Enter the current value of the firm = $100.00...

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