To: Doctor Stochastic
I can get you a pretty good value for the variance of the option Stock options aren't publicly traded like CBOT options, hence they have no FMV, but the gain/loss is computed against the exchange traded stock price when exercised, so how would you compute a varience?
Inquiring minds wanna know.
4 posted on
06/18/2003 1:38:30 PM PDT by
Starwind
To: Starwind
IF we assume that the underlying security is driven by logarithmic Brownian motion (and perhaps that interest rates are generated by arithmetic Brownian motion) then the the value of any option may be simulated by by discounting the future values against a (two) Brownian paths. By running several (about a million) paths, the mean and variance can be computed. Of course, these computations are only projections into the future and the results would be different on different days. Journals like "Management Science" or the "Journal of Derivatives" discuss this type of problem.
I'm not sure how to convert this into an expense.
5 posted on
06/18/2003 1:48:39 PM PDT by
Doctor Stochastic
(Vegetabilisch = chaotisch is der Charakter der Modernen. - Friedrich Schlegel)
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