Research On Compound Option Pricing And Its Application On Equity Valuation

With the development of economic activities such as mergers and ac(?)reorganizations in our country,it is becoming more and more important to realize and estimate the true value of the underlying asset or the investment project with the advent of the information age.Particularly,in the capital market of equity transfer,a more systematic reasonable and objective method for realizing and estimating the value is demanded in order to avoid the unreasonable record-breaking deals.For this,a new idea that considering the equity as a kind of compound option to value has been proposed in this paper,so as to perfect the approach of equity valuation.Before this,first,the paper has studied the compound option pricing model.Although the pricing and evaluation are not exactly the same category,but when studying on the theoretical value of the assets,both have some reference to each other.More specifically,the paper derives a modified model of the classic B-S option-pricing model from two aspects of transaction cost and discrete dividends after carding the theories on option pricing,and then generalizes to the Geske compound option model.In addition,for predicting volatility of the asset,which is a very important parameter of the option-pricing model,the paper applyes the support-vector-machine technology,specifically on predicting volatility of forty representative securities,while the GARCH model predicting results are comparisons.Moreover,the results show that the SVM model has a more effective result on both the predict error and the direction accuracy,so that the model will be applied in the following chapters.Then,after the feasibility study of applying the real compound option method based on deep comprehension of the equity value,a specific case of the real compound option valuing equty applying the modified Geske model is coming up with the traditional valuation method results compared including the discounted cash flow method,market comparsion method,and simple real option method,and following by the Tornado analysis.Base on all aboveresults,the paper draws a conclusion that the real compound option method is feasible on valuing the equity,and specifically applying on the equity whose future cash flow is difficult to predict but with obvious trend.