Applying Margrabe's exchange option model to pricing proxy contests

Article Abstract:

W. Margrabe's exchange option model is applied in evaluating dissident shareholders' option to wage a proxy fight for control with management. The proxy contest option (PCO) valuation model developed treats dissidents as the purchasers of an 'option' to exchange the value of the firm under current management for the value of the firm under a new or improved management team. Test results affirm the suitability of Margrabe's model for pricing the PCO.

Valuation

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Option pricing bounds and the pricing of bond options

Article Abstract:

Analysis of option pricing bounds through a linear programming methodology shows that the distance between the upper and lower bounds constricts considerably when the no arbitrage condition begins to work to cover more bonds. The number of bonds, however, falls far short of the number required to come up with a complete bond market. The model used assumes two conditions, namely, the existence of a zero-coupon bond and an underlying asset.

Linear programming, Usage, Prices and rates

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Time-Varying Volatility in the Foreign Exchange Market: New Evidence on its Persistence and on Currency Spillovers

Article Abstract:

Analysis indicates that volatility noise aggregates out rapidly as it is dominated by volatility persistence for data sampled at frequencies of 15 minutes or less over a period of 40 trading days for US dollar spot exchange rates. Cross-currency spillovers were found to be small.

United States, Foreign exchange, Foreign exchange rates, Comparative analysis, Foreign exchange market

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