File Name: Exotic Options – Foreign Takeover Options
Location: Modeling Toolkit | Exotic Options | Foreign Takeover Options
Brief Description: Computes a foreign takeover option, where the holder has the right to purchase some foreign exchange at a prespecified rate for the purposes of a takeover or acquisition of a foreign firm
Requirements: Modeling Toolkit
Modeling Toolkit Function Used: MTTakeoverFXOption
In a Foreign Takeover Option with a Foreign Exchange element, if a successful takeover ensues (if the value of the foreign firm denominated in foreign currency is less than the foreign currency units required), the option holder has the right to purchase the number of foreign units at the predetermined strike price (denominated in exchange rates of the domestic currency to the foreign currency), at the option expiration date (Figure 52.1).
Figure 52.1: Foreign exchange–based takeover options