Options, futures, forwards, and its applications in corporate finance.

Option is a derivative financial instrument that establishes a contract between two parties concerning the buying or selling of an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in some specific transaction on the asset, while the seller incurs the obligation to fulfill the transaction if so requested by the buyer – CALL and PUT.

Futures contract is a standardized contract between two parties to buy or sell a specified asset (e.g. oranges, oil, gold) of standardized quantity and quality at a specified future date at a price agreed today (the futures price or the strike price). Only price and time are changeable

Forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed today. Agree to buy dollars in two weeks at the exchange rate of today.

49. Decision making tools.

The most frequently used techniques are: Multivoting and Nominal Group Technique. Multivoting is used when it is needed to reduce a long list of ideas and assign priorities quickly and with a high degree of team agreement or identify the important items on a list. Nominal Group Technique is needed to generate, clarify, evaluate list of issues and to prioritize the list. NGT is because of limited interaction between members of the group during the process. NGT is a good tool to use when dealing with controversial or emotional issues. Working in silence, each team member writes down his or her ideas on a piece of paper.

50. Multiple criteria decisions aid models.

MCDA (or MCDM) are models that are supporting decision makes that are faced with numerous and sometimes conflicting evaluations. On the first stage it is not possible to base a decision on the measurement, as no ordinal and interval information is available. The MCDA is basically turns some of descriptive information into the numbers. There are many MCDA methods. Exactly the same problem data are used with different MCDA / MCDM methods, such methods may recommend different solutions even for very simple problems.

Examples of methods:

1) Aggregated Indices Randomization Method - aggregate index is calculated as a weighted sum of single indices.

2) Analytic Hierarchy Process - that's what we did during one of Project Management classes while "saving 6 people out of 10". You come up with different criteria, then give these criteria weights and then review each option based on the total amount of weighted grades (in the example of employment).

3) Dominance-based rough set approach - to evaluate a student's performance at school when the grades are written in ordinal form (good, bad, satisfactory). Here you count mean, mode and compare these results between each other. If some conditions are accepted (for instance, can't be a good student if Math is bad), then add them.

Date: 2015-02-03; view: 566