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Discuss four ways that option pricing is used in corporate finance.

Discuss four ways that option pricing is used in corporate finance.

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Answer #1

Option pricing is used in corporate finance in following ways-

A. Option pricing is used to find the value of various options available to the company and it will be helpful in arbitraging.

B. Option pricing will be helpful in better management of trading strategies and portfolio management

C. option pricing is also used in pricing of the real options like expansion and abandonment

D. option pricing will also be used in various kinds of hedging contracts which are undertaken by various companies when they are exposed to interest rate risk and currency fluctuations risk.

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