TakeoverFX

(ModelStatistic, ValueFirm, NumCurrency, Strike, ExchangeRate, TimeExpire, VolFirm, VolExch, IntRateDom, IntRateFor, Correlation, MarketPrice, TimeFormat, IntRateDomType, IntRateForType)

Argument

Description

ModelStatistic

Numeric value indicating the type of function required for the return value:

•Theoretical = 1

•Delta = 2

•Gamma = 3

•Theta = 4

•Lambda = 9

•StrikeSensitivity = 11

•ImpliedStrike = 13

•Chi = 48

•ImpliedCorr = 50

•AssetImpliedVol = 51 (Implied Volatility of the underlying asset)

•ExchangeImpliedVol = 52 (Implied Volatility of the exchange rate)

•RhoDomestic = 53 (Rho of the Domestic interest rate)

•RhoForeign = 54 (Rho of the Foreign interest rate)

•ExchangeSensitivity = 55 (Sensitivity to a change in the exchange rate)

•AssetVega = 56 (Vega of the asset price's volatility)

•ExchangeVega = 57  (Vega of the exchange rate's volatility)

ValueFirm

The value of the foreign firm in the foreign currency.

Must be > 0.

NumCurrency

The number of currency units at the option expiration.

Must be > 0.

Strike

The price at which the asset can be purchased if the option is a call or sold if the option is a put. Must be > 0.

ExchangeRate

The spot exchange rate. For options valued in domestic currency, it is specified in units of domestic currency per unit of foreign currency. For options valued in foreign currency, it is specified in units of foreign currency per unit of domestic currency.

TimeExpire

Time, expressed in either Days or Years (depending on the TimeFormat value), until the options expiration. Must be > 0.

VolFirm

Annualized volatility of the underlying security. Must be > 0.

VolExch

Annualized volatility of the exchange rate. Must be > 0.

IntRateDom

Risk-free domestic interest rate expressed as a percentage. This rate is interpreted as a continuously compounded rate unless otherwise specified in the IntRateDomType argument. Must be > 0.

IntRateFor

Risk-free domestic interest rate expressed as a percentage. This rate is interpreted as a continuously compounded rate unless otherwise specified in the IntRateForType argument.

Must be > 0.

Correlation

The correlation between the underlying asset price and the exchange rate. Must be -1 < Correlation < 1.

MarketPrice

Optional. The selling price of the option in the marketplace. This input is required when any implied value is calculated. Price must be > 0.

TimeFormat

Optional. Alphanumeric value indicating the format of the time arguments (i.e. TimeExpire). If omitted, Days are used as the default. Specified as either:

•Days = 0 or "D" (case insensitive)

•Years = 1 or "Y" (case insensitive)

IntRateDomType

Optional. Alphanumeric value indicating the type of IntRateDom to use when evaluating the option. This value is converted to Continuously Compounded for the calculations. If omitted, a Continuously Compounded rate is used.

IntRateForType

Optional. Alphanumeric value indicating the type of IntRateFor to use when evaluating the option. This value is converted to Continuously Compounded for the calculations. If omitted, a Continuously Compounded rate is used.

Calculate all of functions for a Takeover Foreign-Exchange call option on a firm whose value 0.5 years from expiration is $65, the number of currency units is 60, the exercise price is $1.0, the exchange rate is $1.5, the domestic risk-free interest rate is 8% per annum, the foreign risk-free interest rate is 6% per annum, the annual volatility of the firm is 40%, the annual volatility of the exchange is 12%, and the correlation between the asset price and the currency rate is 0.4. All of the rates are considered continuous. So,

Input

Output

Variable

Value

Function

Name

Value

ValueFirm

65

1

Theoretical:

11.182581

NumCurrency

60

2

Delta:

-0.615329

Strike

1

3

Gamma:

0.020011

ExchangeRate

1.5

4

Theta:

-0.007250

TimeExpire

0.5

9

Lambda:

-3.576666

VolFirm

40%

11

Strike Sens:

-23.946199

VolExch

12%

13

Implied Strike:

1.007625

IntRateDom

8%

48

Chi:

-1.907386

IntRateFor

6%

50

Implied Corr.:

0.495641

Correlation

0.4

51

Implied Vol. A:

0.388068

MarketPrice

11

52

Implied Vol. E:

0.893261

TimeFormat

Years

53

Rho Domestic:

0.119731

54

Rho Foreign:

-0.375626

55

Exchange Sens:

23.419186

56

Vega Vol. A:

0.150029

57

Vega Vol. E:

-0.063578

Equity Linked FX

Foreign Equity

Quanto