Lattice models, typically binomial lattice models, are utilized for the valuation of more complex equity and debt securities which cannot be valued using a closed-form solution (such as the Black-Scholes-Merton option pricing model); however, the modeling and selection of appropriate methodology present many challenges. In this webinar, the speakers will present several approaches to valuing complex equity and debt securities, including the identification of a security’s features and payoffs that require a lattice model instead of a closed-form solution. In addition, the speakers will share their opinions and potential pitfalls when utilizing lattice models.

• Overview of lattice models
• Lattice models for equity securities
• Closed-form vs. lattice model
• Cox, Ross, and Rubinstein Binomial Option Pricing Model
• Case studies
• American Call Option
• Dividends vs. no dividends
• Continuous vs. discrete dividends
• Employee stock option utilizing sub-optimal exercise factor
• Equity securities within a complex capital structure
• Measuring volatility
• Lattice models for debt securities
• Debt with embedded options
• Appropriate models when valuing debt
• Identifying option features
• Black-Derman-Toy Model
• Convertible debt
• Credit risk and equity option features into a debt model
• Conclusion

• Identify some basic types of securities or features that require a lattice model
• Learn how to create a lattice model for more complex equity and debt securities using Microsoft Excel
• Learn how measure volatility of underlying asset (equity, interest-rate, etc.)
• Identify common pitfalls and mistakes made when utilizing lattice models