Advanced Finance — lecture notes
Options, debt financing, risk management, financial planning & working capital management, mergers
Lecture 1 #
Interesting Facts #
- Many traditional banks are not hedging with options yet
- Holcim: write put options and buy call options to acquire public companies
Derivatives #
Financial instruments derived from another
Options #
- European (only at exercise date), American (at any given time)
- Much more efficient way of using capital
- You can generate a put option by shorting and buying a call option
Lecture 2 #
Option Pricing #
- Option delta: spread of possible option prices / spread of possible share prices
- Risk-neutral valuation:
- p = (1 + interest rate) - downside change / upside change - downside change
- Value of call option = p * highest valuation + (1-p)*lowest valuation
- Present value of call option = value of option / interest rate
Put Call Parity #
Warrants #
Create new shares at a given price, but will dilute the shares.