4. Applications of Options Strategies某竡.pptVIP

OPM application to determine the Required Yield of A Risky Loan Utilize option pricing model (OPM) to determine the required yield of a risky loan (k) Borrower (stockholder)- put option buyer Lender (FI)- put option seller P = Xe-iT N(-d2) – SN(-d1) d1 = ln(S/X)+(r+σ2/2)T , d2 = d1- σ√T σ√T → given S, σ, then P is computed. OPM application Utilize option pricing model (OPM) to determine the required yield of a risky loan (k) Borrower (stockholder)- put option buyer Lender (FI)- put option seller P = Xe-iT N(-d2) – SN(-d1) d1 = ln(S/X)+(r+σ2/2)T , d2 = d1- σ√T σ√T → given S, σ, then P is computed. Measurement of the Credit Risk of OBS Instruments The expansion in OBS instrument – such as swaps, options, forwards, futures, etc. Default risk of the instruments have been concerned. It has been reflected in the BIS risk-based capital ratio. KMV Models apply OPM to measure the probability of default on OBS instruments. OPM application Utilize option pricing model (OPM) to determine the required yield of a risky loan (k) Borrower (stockholder)- put option buyer Lender (FI)- put option seller P = Xe-iT N(-d2) – SN(-d1) d1 = ln(S/X)+(r+σ2/2)T , d2 = d1- σ√T σ√T → given S, σ, then P is computed. OPM application Let S = A (value of asset) X = B (debt) V = value of a loan (from the prospective of FI) (risk-free asset) + = put option P V=? Be-it OPM application V = Be-iT – P , also V = Be-kT given B, T, i, A, σ,→ solve k = ? Thus, FI should charge required yield, k, for the risky loan. However, in real world, A and σ are unknown, then what? KMV model K