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Stage 6 (2021) “Stock Options”

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Stage 6 (2021) "Stock Options"

This is an actual case from the Financial Modeling World Cup 2021, Stage 6 (June 25-28) competition. This case deals with option pricing and could be quite a challenge if you haven’t refreshed your knowledge on option pricing after graduation from the university.

Case description:

The objective of this case is to value stock options using the binomial tree valuation model. The model is based on the assumption that the stock can either go up or down in the next period. The model is used to value European and American options, and two different types of options based on their payoff characteristics: call and put options. The case consists of five parts that gradually become more complex, starting with basic probabilities and continuous discounting and moving to value options using a three-year, quarterly binomial tree model.

The challenge lies in creating the binomial tree model for HE’s stock and stock options based on the assumptions given, which include a continuously compounded risk-free rate, the current price of HE, and the probability that HE’s stock will go up next year. Furthermore, you are required to value two different types of options based on their exercisability and two different types of options based on their payoff characteristics.

The downloadable file consists of the following:
-Task: PDF file with Case Materials; PDF file with Questions
-Solution: Excel file with full Solution Model; PDF file with correct Answers in Bold

For your questions/suggestions/consideration please reach out to the Organizing Committee of the Financial Modeling World Cup at info@fmworldcup.com
You can also buy tickets to participate in the future FMWC Stages at https://fmworldcup.com/shop/

 

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