Valuing Takeover-Contingent Foreign Exchange Call Options

Posted: 2 May 2000

See all articles by Jacques A. Schnabel

Jacques A. Schnabel

Wilfrid Laurier University - School of Business & Economics

Jason Zhanshun Wei

University of Toronto - Rotman School of Management

Abstract

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

Schnabel, Jacques A. and Wei, Jason Zhanshun, Valuing Takeover-Contingent Foreign Exchange Call Options. Available at SSRN: https://ssrn.com/abstract=6022

Jacques A. Schnabel (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
CANADA

Jason Zhanshun Wei

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-3698 (Phone)
416-971-3048 (Fax)

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