Sally Jameson

FIN 512 (Spring 2012) incident Write-up #4 Name: Yiyang Li Net_ID: yli119 run into: February 20, 2012 Case: Sally Jameson Compensation Case Sallys Compensation Its the sequence for snow-melting, its the season for c arer interviews, and its also the season, hopefully, for start unemployment reckon. Sally Jameson, an MBA student gradatory from the ivory tower HBS, is hotshot of the lucky graduates and got a trouble from Telstar. Additionally, the generous employer offers her a peculiar(prenominal) compensation package she could choose both cash of $5,000 or 3,000 special survivals that allow her to buy as many as 3000 shares of Telstars stocks for $35.00 at her 5th anniversary employment. straightaway is whitethorn 27, 1992, we have a list of quotations of Short- and Long-terminus gripe Options of Telstar stocks, a list of historical price and volatility of Telstar crude express since Jan, 82, and a list of T-bill security yields. Now we are hither to help her net a choice. I. B-S Model for option pricing Today is the final day for Sally to make a choice, we relies on the famous Black-Scholes Model to price the options in the compensation. Before pricing, we call for to know the volatility and the continuous deepen pertain rate.

For interest rate, we regard the 5 years T-bill bind yields as the risk-free rate and assume Sally and opposite investors of Telstar are risk-neutral. 1+5*BEY5yr=exp5r, where BEY5yr is the annualized Treasury Bills bond akin yield and r is the continuous intensify interest rate we want to derive, which is 5.2627%. Secondly, s ince historical volatility could not perfect! ly take a hop the scenarios in the future, we engross options prices that could reflect the investors expected volatility (due to the in effect(p) market hypothesis). Moreover, as the volatility derived from long-term call options are more slender than that derived from short-term, we would use the 3 long term options with different strikes prices of $12.5, $17.5 and $20.00. S| K| sigma| d1| d2|...If you want to get a full essay, ready it on our website: BestEssayCheap.com

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