use of call_and_put_options

Jun 28th, 2015
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Abraham Lincoln University
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An option is a sort of agreement between a seller and a buyer to sell stock at a fixed price and on or before and specific date. Option trading gives the right to the buyer to buy or not to buy that means he has got the choice to make the decision. On the other hand the seller has got no choice because when the buyer opts for buying the stocks the seller has to sell the stocks to the buyer.

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Analysis and Critique of the Average Strike Put OptionMarketability Discount ModelStillian GhaidarovGrant Thornton LLPValuation Services Groupe-mail: stillian@alumni.usc.edustillian.ghaidarov@gt.comSeptember 2009AbstractIn this paper I examine the results from Finnertys average strike put option marketability discount model,and demonstrate some easy-to-compute lower and upper bounds for the average strike put option obtainedusing geometric average options for which exact closed-form formulas exist. The results obtained usingFinnertys formula appear to exceed the upper bound significantly. I investigate the source of theinconsistency and propose an adjusted closed-form formula for the price of the arithmetic average strike putoption and the associated marketability discount. The adjusted formula is within the established lower andupper bounds, and agrees with numerical simulation results.Analysis and Critique of the Average Strike Put OptionMarketability Discount ModelIntroductionIt is well documented in a number of empirical studies that the values of securities are affected by theirrelative marketability. For two otherwise identical stocks, investors will demand a significant discount to theprice of the security which cannot be converted into cash instantly.The use of option pricing models as a tool to quantify discounts for lack of marketability (DLOM) isincreasingly popular among valuation practitioners. The categorization of market

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