The major principles to remember when considering real options include all of the following EXCEPT: A. waiting is valuable. B. in-the-money real options need to be exercised immediately. C. out-of-the-money real options have value. D. create value by exploiting real options.
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The major principles to remember when considering real options include all of the following EXCEPT:
A. waiting is valuable.
B. in-the-money real options need to be exercised immediately.
C. out-of-the-money real options have value.
D. create value by exploiting real options.
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- Select all that are true with respect to real options. Out-of-the-money real options have value. In-the-money real options need not be exercised immediately. Waiting is often valuable. One can often create value by exploiting real options.Why must real options have positive value? (Select all the choices that apply.) A. Having the real option but not the obligation to act is valuable. B. Real options must have positive value because they can always be sold to recover the initial investment. C. Real options must have positive value because they are only exercised when doing so would increase the value of the investment. D. If exercising the real option would reduce value, managers can allow the option to go unexercised.Consider the following statement: “In contexts of increased uncertainty, the usefulness of real options when valuing an investment opportunity increases”. Do you agree with this statement? Explain your answer.
- An analyst wanting to assess the downside risk of an alternative investment and is considering the Sortino ratio, value at risk (VaR) and standard deviation of returns. Which of these would be appropriate and why? Explain why one or more of the options above are correct and explain why, if any of the remaining options are incorrect.a. Explain the covered call options strategy b. Graphically show a covered call options strategy, including payoff. Explain why an investor mayuse this option strategy.c. Using put-call parity, explain the shape of the payoff line (in part (a) of this question). Whatoption position does it look like and why?Explain how the possible profit and loss possibilities arise for an individual who invests in a: a. A Call Option i. Be sure to explain what a Call Option is. ii. Be sure to incorporate the cost of the Call Option in your analysis. b. A Put Option i. Be sure to explain what a Put Option is. ii. Be sure to incorporate the cost of the Put Option in your analysis.
- Briefly describe what an investment timing option is and why such options are valuable.In a qualitative analysis, what factors affect the value of a real option?What’s the difference between a financial optionand a real option? What are some specific typesof real options? Do real options just occur, or canthey be “created”?
- Explain how the possible profit and loss possibilities arise for an individual who invests in a: A Call Option, be sure to explain what a Call Option is. Be sure to incorporate the cost of the Call Option in your analysis. A Put Option, be sure to explain what a Put Option is. Be sure to incorporate the cost of the Put Option in your analysis.a)explain the concept of the delta normal method for calculating VAR when options are present in the portfolio. b)explain the basic concepts of the historical method and the Monte Carlo simulation method of calculating VARs. c)discuss the benefits and limitations of VAR. d)define credit risk (default risk). e)explain how option pricing theory can be used in valuing default risk.What is the maximum value that a call can take? Why? Explain which option (i.e. put or call) positions (i.e. long or short) offers the most risk.