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Lattice models, typically binomial lattice models, are utilized for the valuation of more complex equity and debt securities that 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, Dave Duffendach and John Sawyer 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.
Program Agenda
Overview of lattice models
Lattice models for equity securities
Closed-form vs. lattice model
Cox, Ross, and Rubinstein Binomial Option Pricing Model
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
Learning Objectives
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 to measure volatility of underlying asset (equity, interest-rate, etc.)
Identify common pitfalls and mistakes made when utilizing lattice models
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