The Black–Scholes-Merton (BSM) model is a renowned option pricing model used widely in financial markets. It was published by Fischer Black, Myron Scholes , and then Robert Merton in the early 1970s. Scholes and Merton later received the Nobel Memorial Prize in Economic Sciences for their work (Black died before …

Forward contracts are a crucial part of hedging and speculation for investors. These contracts allow two parties to buy or sell an asset at a specific price and future time. Usually, they also include the commodity, delivery date, and amount for the agreement. Forward contracts may come in many forms …

Financial transactions are the essence of a business. These transactions allow companies and other entities to acquire products or services. Once they do so, they can resell them to generate profits. While most transactions are straightforward, they may also require a legal form. For that purpose, sales and purchase agreements …

The term mergers and acquisitions (M&A) refers to the consolidation of companies through financial transactions. This process involves one company acquiring another company’s shares. Several terms and conditions may apply to these transactions. However, these terms may differ from one market to another. The valuation adjustment mechanism is unique to …

In the financial world, many different terms may be unfamiliar to you. One of these could be an “Interest Rate Cap,” which can help you protect your investments or savings from any drastic changes in interest rates. Interest rate caps have been around for over 50 years and have proven …

An option is a contract that provides its holder with the right to buy or sell an underlying asset or security. It involves a specific price before or on a predetermined date. However, it does not obligate them to do so. There are several option styles, which represent the class …

A swap is a financial derivative that allows two parties to exchange their financial instruments or cash flows. These are highly crucial for investors, particularly for hedging. There are various types of swaps that investors can acquire. One of these includes total return swaps. Before understanding what these are, it …

Convertible bonds are complex securities that are part debt, part equity. The main feature of a convertible bond is the conversion that allows the bondholder to convert debt to equity. In addition, there can be many other “exotic” features such as callable, puttable, forced conversion, soft call, contingent conversion, etc. …

We previously discussed implied dividend yield and how to extract it from traded financial instruments. Given that dividend is considered a cash payment the shareholder receives when holding a stock, naturally one would think that dividend yield can only be zero or positive. We recently, however,  worked with a client …

Black-Scholes-Merton (BSM) is a celebrated option pricing model that is used frequently in the financial industry . The model was developed initially for equity options but then has been extended to many asset classes. It is so frequently used, to the point that the practitioners almost do not pay attention …