Valuing Takeover-Contingent Foreign Exchange Call Options
Posted: 2 May 2000
A valuation model is developed for a special type of foreign exchange call option, viz, one that is exercisable only if the international takeover, which occasions the need for foreign exchange, is successful. The comparative statics of the model are derived and the intuition underlying the model is explained. Numerical simulations are performed to illustrate the price discount of a takeover-contingent versus a regular foreign exchange call option.
JEL Classification: F31
Suggested Citation: Suggested Citation