The Ownership of the Firm, Corporate Finance, and by Kuo-Ping Chang

By Kuo-Ping Chang

This ebook clarifies numerous ambiguous arguments and claims in finance and the speculation of the enterprise. It additionally serves as a bridge among derivatives, company finance and the idea of the company. as well as mathematical derivations and theories, the ebook additionally makes use of anecdotes and numerical examples to give an explanation for a few unconventional ideas. the most arguments of the ebook are: (1) the possession of the company isn't really a legitimate proposal, and corporations’ pursuits are made up our minds via marketers who can innovate to earn extra gains; (2) the Modigliani-Miller capital constitution irrelevancy proposition is a restatement of the Coase theorem, and adjustments within the firm’s debt-equity ratio won't have an effect on equity-holders’ wealth (welfare), and equity-holders’ personal tastes towards chance (or variance) are beside the point; (3) all businesses' assets are innovations, and each asset is either a ecu name and a placed choice for the other asset; and (4) first or residual declare among debt and fairness is non-existent whereas the 1st declare between fixed-income resources can truly have an effect on the marketplace values of those assets.

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Extra resources for The Ownership of the Firm, Corporate Finance, and Derivatives: Some Critical Thinking

Example text

At t ¼ T, if ST [ K, the investor obtains zero profit by using cash K from the bank to exercise the call option, and then give back one share of the stock. If ST \K, the investor can obtain net profit: K À ST [ 0 by getting K from the bank and spending ST to buy one share of the stock from the market, and then giving back that share of the stock. K If at t ¼ 0; p\ 1þr À S0 , then an investor can immediately obtain net profit by K borrowing cash 1þr from a bank and buying one share of the stock and one put option.

McGraw-Hill, New York Stiglitz J (1969) A re-examination of the Modigliani-Miller theorem. , Merton 1973). , Miller 1988). In this chapter, I use simple arbitrage argument to derive a dozen of model-free option price properties. In addition to deriving the Greeks under model-free framework, it is found that first, in contrast to the traditional view, a European call (put) option for a non-dividend-paying asset can also be a European call (put) option for any other non-dividend-paying asset, and every non-dividend-paying asset is also both a European call option and a European put option for any other non-dividend-paying asset.

The range of the stock in (III) is also larger than that in (I), but (III)’s call and put prices are higher. This result is different from the Dp Dc Black-Scholes-Merton option pricing model’s Dr ¼ Dr [ 0, where r is the volatility. 6 Even without changing the expiration dates, issuers of European options can adjust exercise price K to change the time value of options. 2, TV c ¼ c À ðS0 À KÞ [ 0. Let DK ¼ K 0 À K [ 0 and S0 [ K 0 , we have:  DTV c ¼ TV c0 À TV c ¼ c0 À ðS0 À K 0 Þ À ½c À ðS0 À Kފ ¼ ðK 0 À KÞ 1 À DTV p ¼ TV p0 À TV p ¼ p0 À p ¼  p DTV c [0 [ 0 and DK 1þr 1 DTV p [ 0: ½ð1 À pÞ Á ðK 0 À Kފ [ 0 and DK 1þr (ii) If S0 \K, then TV c ¼ c [ 0.

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