Option Pricing and Applications in Capital Budgeting and Corporate Finance from edX

In this course, we’ll look at the elemental features of basic call and put options and identify the factors which are the key determinants of option values.
We’ll also look at the characteristics and methodology used to estimate option values: Black-Scholes and binomial option pricing models.
In this course, we’ll also define the term “real option” and draw decision trees to represent alternative decisions and potential outcomes in an uncertain economy and describe three types of real options—timing, growth, and abandonment—and explain why it is important to consider those options when evaluating projects.
We’ll explain how an investment for which a negative NPV is projected can have a positive NPV once any embedded real options are properly included in the evaluation as well as describe other methodologies businesses sometimes use to decide among investment projects: Equivalent Annual Benefit, Profitability Index and Hurdle Rate.
We’ll wrap up the course with a look at the option equivalents of corporate securities and explain how any insights obtained can be used in determining optimal investing or issuance strategies.

In this course, we’ll look at the elemental features of basic call and put options and identify the factors which are the key determinants of option values.
We’ll also look at the characteristics and methodology used to estimate option values: Black-Scholes and binomial option pricing models.
In this course, we’ll also define the term “real option” and draw decision trees to represent alternative decisions and potential outcomes in an uncertain economy and describe three types of real options—timing, growth, and abandonment—and explain why it is important to consider those options when evaluating projects.
We’ll explain how an investment for which a negative NPV is projected can have a positive NPV once any embedded real options are properly included in the evaluation as well as describe other methodologies businesses sometimes use to decide among investment projects: Equivalent Annual Benefit, Profitability Index and Hurdle Rate.
We’ll wrap up the course with a look at the option equivalents of corporate securities and explain how any insights obtained can be used in determining optimal investing or issuance strategies.

This course is part 4 of the New York Institute of Finance’s Corporate Finance & Valuation Methods Professional Certificate.

What's inside

Learning objectives

Introduction to option contracts and option pricing
Real options
Integrating real options with net present value analysis

Real options applied to capital budgeting decisions
Option-based deconstruction of corporate securities

Introduction to option contracts and option pricing
Real options
Integrating real options with net present value analysis
Real options applied to capital budgeting decisions
Option-based deconstruction of corporate securities

Good to know

Know what's good

, what to watch for

, and possible dealbreakers

Prepares students for a career in finance or related areas

Fits well as a part of a finance career pathway

Quantitative element will be manageable for students with a grasp of math and statistics

Can be utilized for a deeper understanding of financial careers

Concepts are grounded in industry practice

Can be paired with other courses for a more in-depth learning experience

Activities

Be better prepared before your course. Deepen your understanding during and after it. Supplement your coursework and achieve mastery of the topics covered in Option Pricing and Applications in Capital Budgeting and Corporate Finance with these activities:

Review basic financial concepts

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Solidify your grasp of essential financial concepts for a stronger foundation in this course.

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Review textbooks or online resources on basic finance
Participate in online forums or discussion groups related to finance
Attend a workshop or webinar on financial fundamentals

Explore option pricing models

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Expand your understanding of option pricing by following guided tutorials and practicing with real-world examples.

Browse courses on Black-Scholes Model

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Identify and select reputable online tutorials on option pricing models
Follow the tutorials step-by-step, taking notes and practicing the techniques
Apply the models to real-world option pricing scenarios

Discuss option-based deconstruction of corporate securities

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Gain insights by engaging in peer discussions and sharing perspectives on how options can be used to analyze and understand corporate securities.

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Form or join a study group or online discussion forum
Prepare by reading assigned materials and researching relevant concepts
Actively participate in discussions, sharing insights and asking questions

Five other activities

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Attend a workshop on advanced option strategies

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Gain specialized knowledge and insights by attending a workshop that covers advanced option strategies and techniques.

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Research and identify workshops on advanced option strategies
Register and attend the workshop
Actively participate in the workshop, taking notes and asking questions

Explore open-source financial modeling tools

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Enhance your practical skills by experimenting with open-source financial modeling tools to gain hands-on experience.

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Identify and select reputable open-source financial modeling tools
Install and familiarize yourself with the tools
Build and analyze financial models using the tools

Develop a real options decision tree

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Enhance your understanding of real options by creating a decision tree to represent alternative decisions and potential outcomes in an uncertain economy.

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Identify a hypothetical project or investment opportunity
Brainstorm and list all potential decisions and outcomes related to the project
Construct a decision tree that maps out the possible paths and their associated probabilities
Analyze the decision tree to identify the optimal decision based on the expected value

Develop a financial model incorporating real options

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Apply your understanding of real options by building a financial model that incorporates real options into the valuation process.

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Identify a suitable project or investment opportunity
Gather relevant data and information
Construct a financial model that incorporates real options
Analyze the model and evaluate the impact of real options on the project's value
Present the findings and recommendations

Compile and review course materials

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Reinforce your understanding by organizing, expanding on, and reviewing notes, assignments, quizzes, and exams.

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Gather all course materials, including notes, slides, assignments, and assessments
Review and summarize key concepts and formulas
Identify areas where further understanding is needed and seek additional resources

Career center

Learners who complete Option Pricing and Applications in Capital Budgeting and Corporate Finance will develop knowledge and skills that may be useful to these careers:

Financial Analyst

Financial Analysts help clients make informed investment decisions. This course can be very helpful to both entry-level analysts who are getting into the field as well as those who want to learn more about investment options. Graduates may find themselves valuing real investment options, executing trading strategies, and making recommendations for equity markets.

See salaries and explore the career path for Financial Analyst

Investment Banker

Investment Bankers provide their clients with a range of financial services which may include underwriting new investment opportunities. To be successful, investment bankers need to have a strong understanding of how to value options and may wish to take this course to enhance their knowledge in this area.

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Portfolio Manager

Portfolio Managers oversee investment portfolios, making decisions about what to buy and sell. They study market trends, company fundamentals, and other factors to make informed decisions. This course may be particularly helpful to those wishing to manage portfolios that have an emphasis on option strategies.

See salaries and explore the career path for Portfolio Manager

Risk Manager

Risk Managers are tasked with protecting their companies from financial losses. They analyze risks and make recommendations for how to reduce them. To be successful, Risk Managers need to have a strong understanding of how to value options and may wish to take this course to enhance their knowledge in this area.

See salaries and explore the career path for Risk Manager

Equity Research Analyst

Equity Research Analysts provide detailed reports on companies, their earnings, and growth potential. To be successful, Equity Research Analysts need to have a strong understanding of how to value options and may wish to take this course to enhance their knowledge in this area.

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Trader

Traders buy and sell stocks, bonds, and other financial instruments for their clients or for their own account. To be successful, Traders need to have a strong understanding of how to value options and may wish to take this course to enhance their knowledge in this area.

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Corporate Finance Analyst

Corporate Finance Analysts provide financial advice to their clients. This can include advising on capital budgeting, mergers and acquisitions, and other financial matters. To be successful, Corporate Finance Analysts need to have a strong understanding of how to value options and may wish to take this course to enhance their knowledge in this area.

See salaries and explore the career path for Corporate Finance Analyst

Financial Planner

Financial Planners help individuals and families make informed financial decisions. This can include advising on investments, retirement planning, and other financial matters. To be successful, Financial Planners need to have a strong understanding of how to value options and may wish to take this course to enhance their knowledge in this area.

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Quantitative Analyst

Quantitative Analysts use mathematical and statistical models to analyze financial data, such as correlations and risks, in order to help make informed investment decisions. To be successful, Quantitative Analysts may wish to take this course to help build a foundation in option pricing and valuation and gain an understanding of advanced option modeling techniques.

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Data Scientist

Data Scientists use statistical and mathematical modeling to derive insights from data. This course may be helpful to those wishing to analyze financial data, as it helps build a foundation in option pricing and valuation and provides an understanding of advanced option modeling techniques.

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Software Engineer

Software Engineers design, develop, and maintain computer systems and applications. This course may be helpful to those wishing to develop trading or financial software, as it provides a foundation in option pricing and valuation and an understanding of advanced option modeling techniques.

See salaries and explore the career path for Software Engineer

Actuary

Actuaries use statistical and mathematical models to assess risk and uncertainty in the insurance industry. This course may be helpful to those wishing to specialize in the pricing of insurance products, as it provides a foundation in option pricing and valuation and an understanding of advanced option modeling techniques.

See salaries and explore the career path for Actuary

Economist

Economists study the production, distribution, and consumption of goods and services. This course may be helpful to those wishing to specialize in financial economics or econometrics, as it provides a foundation in option pricing and valuation and an understanding of advanced option modeling techniques.

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Statistician

Statisticians collect, analyze, interpret, and present data. This course may be helpful to those wishing to specialize in financial statistics or econometrics, as it provides a foundation in option pricing and valuation and an understanding of advanced option modeling techniques.

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Financial Consultant

Financial Consultants provide advice to individuals and businesses on financial matters. This course may be helpful to those wishing to provide advice on investment or corporate finance, as it provides a foundation in option pricing and valuation and an understanding of advanced option modeling techniques.

See salaries and explore the career path for Financial Consultant