1. Chapter 16 Appendix 16C Advanced Models for Measuring Fair Value
Prepared by:
Dragan Stojanovic, CA Rotman School of Management, University of Toronto

2. Options Pricing Models
Two examples
The Black-Scholes option pricing model
Binomial tree option pricing model
Inputs in the models:
Exercise price
Term of the option
Current market price of underlying asset
Volatility of underlying asset
Expected dividend during life of option
Risk-free rate during life of option

3. Black-Scholes Model
Often used to estimate fair values of options for publicly traded companies
This model has two components – an intrinsic value component and a time value component

4. COPYRIGHT
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