Real Options

This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.

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August 26, 2017 at 2:52 pm #403664
cys94
Member
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Dear John,

The Pa (PV of future cash flows) is discounted using the cost of capital while the Pe (exercise price) is not discounted, meaning that the Pe is the actual exercise price. Am I right? Please correct me if I am wrong.
August 26, 2017 at 5:09 pm #403682
John Moffat
Keymaster
- Topics: 57
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You are right – Pe itself is just the exercise price (the Black Scholes formula does the discounting of it – that is what the bit with ‘e’ is doing 🙂 )
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