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Fundamentals of Corporate Finance, 4/c/e

Fundamentals of Corporate Finance, 4/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Options and Corporate Securities

Internet Application Questions


1		The 1997 Nobel prize in Economics was awarded to Robert C. Merton and Myron S. Scholes for doing the early pioneering work in options pricing. The following site contains the transcript of an interview conducted by the Public Broadcasting Service of the U.S. and the two professors. The interview explains the principles behind options pricing, and the excitement the news of the Nobel prize generated for the recipients. In two short sentences, can you paraphrase Scholes' and Merton's explanation of the intuition behind their options pricing formula? http://www.pbs.org/newshour/bb/business/july-dec97/nobel_10-14.html



2		The Baker Library at Harvard University provides many publicly available research exhibits on its website. The following exhibit explains the work of Nobel Laureate Robert C. Merton on options pricing. http://www.library.hbs.edu/merton/about.htm Describe one application of Professor Merton's work outside of finance and investments.



3		The Chicago Board of Options Exchange (CBOE) is the premier venue for trading options in the United States. The CBOE provides one of the best educational links to understand both the valuation of options, and the institutional details such as trading practices. Click on the CBOE link below to take a self-paced tutorial in options pricing and trading. http://www.cboe.com/LearnCenter/ When you are done with the tutorial, go back to the CBOE site and find and describe securities called LEAPS. Note that the Canadian derivatives exchange, the counterpart of the CBOE, is the Montreal Exchange.

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