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Finance and Accounting Essay: Option Pricing
The loss that amounts is in the loss of cash or amount paid for the option. Determinants of an option are stated as stock price, volatility, strike price, risk free (short term) interest rate and time to the expiration. The contract in this case, is called the option contract (Don, 2004, 142). Options are used by holders for leverage or for protection. The leverage function helps the holder to…

Option Pricing Theory
An option provides the buyer the right to buy or sale the quantity of goods he or she wants at a fixed price known as the strike price. Since the process of buying an option is optional, the holder can choose not to buy or sale the assets. There are two options these are; right to buy and right to sale. Options can come in several varieties like; a put option, gives the seller an underlying price…

Capital Asset Pricing Model
This model has been heavily criticised and debated over the past decades, and many of the economists are of the opinion that this framework is not adequate enough to assess various risk factors comprehensively. However, none of the opponents could introduce a potential alternative to this concept till date. This paper will critically analyse the applicability of the CAPM in corporate finance…

CAPM (Capital Asset Pricing Model)
and expected returns which is denoted as r. The ? is used as a measure of non diversified risk and implies that the expected return is the return on a risk free asset in addition to a risk premium (Laubscher, 2002). The risk premium will be equivalent to the market return in surplus of the risk free rate which is multiplied by the share portfolio. This is the reason that ? is regarded as the…

The Capital Asset Pricing Model
The equation that is applied in the calculation of CAPM for the assets is as follows: E(Ri) =RF +?i [E(RM) - RF] Where, E (Ri) = expected return of the ith level. Rf = risk-free return of an asset (such as short-term government securities), ?i = beta coefficient of ith level, and (RM) = Expected return on the market. The main aim of the CAPM model underlies the identification of the market…

Capital Asset Pricing Model
Usually, the overall volatility of the market is measures through proxies when implementing this model, for instance, the use of FTSE index. Such proxies are not usually the true measures of the market volatility which is at the core of the CAPM assumptions. Therefore, the model estimations from CAPM with use of market proxies for volatility can only predictions that are approximates and not the…