Black Scholes option pricing model and Conversion premium: Difference between pages

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(BSOPM).  
The premium over an ordinary share's current market price at which the holder of the convertible security may convert it into ordinary shares.


The Black Scholes option pricing model is an example of a risk-neutral valuation model. It models the value of European-style options on non-dividend paying assets, based on the underlying price, the strike price, the underlying volatility, the time to expiry and the risk-free rate of return.
 
For example:
 
the current market price of the ordinary shares is £2,  
 
the conversion price is £2.50. 
 
 
The conversion premium
 
= [£2.50 - £2.00 = £0.50]/£2.00
 
= 25%.




== See also ==
== See also ==
* [[Binomial option pricing model]] (BOPM)
* [[Conversion price]]
* [[European-style option]]
* [[Convertible bonds]]
* [[Leptokurtosis]]
* [[Model]]
* [[Option]]
* [[Risk neutral valuation]]
* [[Risk-free rate of return]]
 
[[Category:Corporate_financial_management]]
[[Category:Financial_risk_management]]

Revision as of 15:09, 20 September 2014

The premium over an ordinary share's current market price at which the holder of the convertible security may convert it into ordinary shares.


For example:

the current market price of the ordinary shares is £2,

the conversion price is £2.50.


The conversion premium

= [£2.50 - £2.00 = £0.50]/£2.00

= 25%.


See also