Option Pricing Model in Valuing a Company - Dissertation Example

Download file to see previous pages In today’s time, the concept of option pricing has emerged as a safeguarding tool for a number of organizations willing to safeguard their interest by deriving the future value of an asset in the present time (Brealey, 2003). Considering the emergence and acceptance of the option pricing model, the researcher aims to analyze and investigate the option pricing model in valuing a company. In order to make the research all the more compact and to the point, the research will be conducted on Pfizer, an American multinational pharmaceutical company and also the world’s largest research-based pharmaceutical company. The success of Pfizer in the last few years is quite noticeable and the research will be conducted in the context of the option pricing model revolving around the organization.

In the option pricing model, the buyer of the option gains substantial rights but not the obligation while the seller is obliged to fulfill the contract. The price of the option is calculated by ascertaining the difference between the reference price and the value of underlying assets along with adding a premium based on the time remaining for the expiration of the option. This states that the option pricing model is not only interesting but also offers options for security and safety.

1.2: Research Aim and Objectives
The research aims to underpin and analyze the option pricing model in valuing the organization, Pfizer. The research also aims to investigate the intricacies of the option pricing model and its implications and pros and cons in valuing organizations. In order to support the research aim, the researcher has also designed a few research objectives. The research objectives are as follows:

 To underpin the concept of the option pricing model in valuing a company in an illustrative manner
 To analyze and understand the intricacies of the option pricing model in valuing a company
 To investigate the pros and cons of valuing a company using an option pricing model
 To evaluate the role and implications of the option pricing model in valuing a company

Research Questions
The researcher has also designed a few research questions to support the purpose of the research aim and objectives. The research questions are as follows:
1. What is the key benefit of the option pricing model in valuing a company?
2. What are the main features and elements of the option pricing model in valuing a company?
3. How option pricing model has emerged as one of the key options for valuing companies across the world?
4. What are the advantages and disadvantages of the option pricing model while valuing a company?

1.3: Scope of the Research
Whenever one talks about equity investment, one must understand the word “Valuation” to define the value of companies. In financial language, valuation states the worth of a company and with every investment; valuation becomes all the more important and mandatory. There are a number of ways through which a company can be valued. Some of the methods of common use include Net Asset Value, Discounted Cash Flow Method, Capital Asset Pricing Model, and Option Pricing Model (Kellogg, Charnes, 2000).

This clearly suggests that in line with the chosen research topic, the researcher has a great degree of scope to underpin the research topic. This also broadens the entire scope of the research. Moreover, valuing a company requires a profound understanding of its past and present financial performances in order to evaluate future financial performances in a logical way. ...Download file to see next pages Read More