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Exchange Option (exchange + option)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	100%

Selected Abstracts

The optimal timing of the transfer of hidden reserves in the German and Austrian tax systems

INTELLIGENT SYSTEMS IN ACCOUNTING, FINANCE & MANAGEMENT, Issue 2 2002
Manfred FrühwirthArticle first published online: 16 DEC 200
The lower-of-cost-or-market principle implies that assets may be sold above book value, by which hidden reserves are disclosed. To avoid taxation of these hidden reserves, in German-speaking countries companies are allowed to transfer them to a newly purchased asset within a fixed time period. In this paper, the optimal timing of hidden reserves transfers is developed with special attention to the term structure of interest rates and interest rate risk, and using the replicating principle known from the field of finance. The paper presents one model under certainty and, as a generalization of this model, another model under interest rate risk. In both models, the criterion used for decision-making is the value of the right to transfer, which can be interpreted as the initial cost of a replicating/hedging strategy for tax payments saved/incurred. In the model under certainty, the net present value concept is used to derive the value of the right to transfer. The procedure used in the model under interest rate risk is a combination of flexible planning and the no-arbitrage approach common in derivatives pricing. It is shown that the right to transfer hidden reserves with flexible timing is equivalent to an American-style exchange option. In addition, the impact of term-structure volatility on the value of the right to transfer is analyzed. The technique presented in this paper can also be used to solve other timing problems resulting from trade-offs between early and late tax payments/tax benefits. Copyright © 2002 John Wiley & Sons, Ltd. [source]

Pricing American exchange options in a jump-diffusion model

THE JOURNAL OF FUTURES MARKETS, Issue 3 2007
Snorre Lindset
A way to estimate the value of an American exchange option when the underlying assets follow jump-diffusion processes is presented. The estimate is based on combining a European exchange option and a Bermudan exchange option with two exercise dates by using Richardson extrapolation as proposed by R. Geske and H. Johnson (1984). Closed-form solutions for the values of European and Bermudan exchange options are derived. Several numerical examples are presented, illustrating that the early exercise feature may have a significant economic value. The results presented should have potential for pricing over-the-counter options and in particular for pricing real options. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:257,273, 2007 [source]

On the Determination of Contract Price in Credit Sales Transaction: Exchange Option Approach,

ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 5 2010
Jong Yeon Choi
G32 Abstract Conditions for credit sales transactions vary to a great degree depending upon characteristics of the commodity, the buyer, and the seller. In this paper, we analyzed the buyer's right to return purchased commodities and void his or her financial obligations as an exchange option written by the seller and held by the credit buyer. The value of this exchange option is determined by the value of supplied goods and their volatility, the value of bonds and their volatility, and the correlation between the values of the commodity and the bonds. As a result, this paper was able to derive a model that could explain the impact of: (i) characteristics of the commodities; (ii) characteristics of the buyer; (iii) characteristics of the seller; and (iv) changes in market conditions. Besides the progress stated above, we also derived the necessary condition for both the buyer and the seller to be satisfied in a credit sales transaction. Based on this model, a number of empirical hypotheses were made. [source]