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RISK MANAGEMENT POLICY: PFIZER, INC

RISK MANAGEMENT POLICY: PFIZER, INC.

This research considers four risk management tools that Pfizer, Inc. conceivably could incorporate in the firm's risk management policy. Each of the risk management tools is not necessarily appropriate for all forms of risk; however, each tool is appropriate for one or more forms of risk faced by the firm. Risk categories considered for the application of the risk management tools by Pfizer, Inc. are (1) corporate, (2) economic, (3) currency, (4) political, and (5) global business risks.

The Black-Scholes (637) Option Valuation Model assumes that logarithmically (log) normal distribution characterize security returns. If the real underlying distribution differs significantly from log normal, then the Black-Scholes (637) option valuations may exhibit a bias relative to true values.

Five items of information are required to calculate the value of a call option. These items of information are (one and two) the relationship between the market price and the exercise price (two items of information expressed as a single relationship), (3) the time to maturity of the option, (4) the relevant interest rate, and (5) the volatility of the price of the underlying stock (Reilly 199). This model is as follows:

Po = [Ps][N(d1)] - [E][antiln (- rt)][N(d2)],

Po = the market value of the option;

Ps = the current market price of the underlying common stock;

N(d1) = the cumulative density function of d1, as defined below;

E = the exercise price of the call option;

r = the current annualized market interest rate for commercial paper;

t = the time remaining before expiration (in years, e.g., 90 days = .25);

N(d2) = the cumulative density function of d2, as defined below;

In(Ps/E) = the natural log of (Ps/E...

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RISK MANAGEMENT POLICY: PFIZER, INC. (1969, December 31). In LotsofEssays.com. Retrieved 23:06, March 18, 2024, from https://www.lotsofessays.com/viewpaper/1686863.html