the blackwell encyclopedia of management, finance (ian garrett)

[...]... (S), the exercise price (E), the continuous interest rate (r), the time to maturity (t), and the standard deviation of returns on the asset (s) (which is usually known as the volatility) Of these five variables, only the volatility is unknown and needs to be forecast to the maturity of the option The call price in the equation is a weighted function of the asset price (S) and the present value of the. .. treated in the stockholders’ books by two alternative accounting methods, called purchase and pooling of interests The purchase method requires the assets of the acquired company to be reported in the books of the acquiring company at their fair market value The price actually paid will often be greater than the fair market value of the assets of the acquired company, since the value of the company... in the error function via the gradient descent method Weights are adjusted in the direction that re duces the value of the error function after each presentation of the input records ANNs sometimes share the problem of local minima and the problem of overtraining Be cause of the non linearity involved, the algo rithm may not always reach a global minimum Overtraining refers to the situation where the. .. this motivates further modifications to theory: inclusion of the effect of personal tax on shareholders and inclu sion of the costs of financial distress Miller (1977) has argued that the increase in value caused by the corporate tax shield is reduced by the effect of personal taxes on investors In addition, the costs of financial distress increase with added debt, so that the value of the com pany is... where mt is the expected instantaneous rate of return of the bank assets, st is the standard deviation of the instantaneous rate of return of the bank assets, z is a standard Wiener process, Bt is the current market value of the bank liabil ities, K is the knock out value, assumed to be constant, r is the constant instantaneous risk free rate of interest, j is r=s2 þ 1=2, and t N(:) ¼ the standard... rates The fifth assumption is that there are no dividends on the asset, which once again is unrealistic, but modification of the model to accommodate them is relatively simple (e.g., Black, 1975) While most of the theoretical results in finance have not had any impact on practition ers, the Black–Scholes model is universally known and used The existence of the equation has facilitated the development of. .. rate as companies; if they cannot, then companies can increase their values by borrowing If they can, then there is no advantage to investors if a com pany borrows more money, since the investors could, if they wished, borrow money themselves and use the money to buy extra shares of stock in the company The investors would then have to pay interest on the cash borrowed, as would the company, but will... written on the bank assets, with a strike price equal to the total bank deposits, has two main theoretical underpinnings: 1 As soon as the bank asset value declines to the value of the liabilities, the bank capital is worth zero, while the call value is positive, before the option’s expiration 2 In order to maximize the market value of their equity, the bank shareholders system atically choose the most... sum of (1) the principal’s monitoring expenditures; (2) the agent’s bonding expenditures; and (3) the residual loss Barnea, Haugen, and Senbet (1985) divide agency theory into two parts according to the type of contractual relationship examined: the economic theory of agency and the financial theory of agency The economic theory of agency examines the relationship between a single principal who provides... of options of indefinite maturity written by the dealer A put (call) option is written with a striking price equal to the bid (ask) price The quotation size is the number of shares dealers are willing to buy (sell) at the bid (ask) price Simply put, the quotation size represents the number of put (call) options written with a striking price equal to the bid (ask) price In the parlance of options, the . divide agency theory into two parts according to the type of contractual relationship examined: the economic theory of agency and the financial theory of agency. The economic theory of agency examines the. by Blackwell Publishing Ltd Library of Congress Cataloging in Publication Data The Blackwell encyclopedia of management. Finance / edited by Ian Garrett. p. cm. (The Blackwell encyclopedia of.