Business Finance
Name
Institutional Affiliation
Business Finance
Question 1
Modigliani and Miller’s Theory of Capital Structure
Perhaps, Modigliani and Miller used the concept of arbitrage purposely to develop their theory. The occurrence of arbitrage is simultaneous, the selling and buying of the unlevered and levered stocks will consistently continue until the prices of the two commodities are the same. Notably, the two stocks have to be the same in order to allow the arbitrage process to operate. In other words, the arbitrage process cannot operate when the two stocks are not similar. Therefore, the MM theory contends that the decision on capital structure is not relevant to the firm’s value and the corresponding cost of capital (Ardalan, 2017). Significantly, the operations and processes of the theory is based on some assumptions. Unfortunately, it is the nature of these assumptions that lured and attracted many controversial critics.
The M&M model to capital theory was devised in the mid-1950s with the aim of advocating for the capital structure irrelevancy theory. This simply indicates that the valuation of an organization is possibly irrelevant especially to the capital structure of an organization. An organization has no market value whether it is highly leveraged or has a lower debt component. Therefore, the market value of an organization is relatively dependent on the prevailing operating profits of a company. A company often finances its assets through using a capital structure. On the other hand, a company may as well finance its operations by either using equity or diverse combinations of equity and debt. Indeed, the capital structure of a company can a times gain a majority of the components of debt or majority of equity or even majority of both debt and equity. The M&M approach is one of the approaches in which attempt to establish a stable relationship between the financial leverage of an organization depending on its market value.
Basically, the M&M approach operates in a similar manner as the Net Operating Income Approach. The theory also contends that the value of a market is intensely affected by its corresponding operating income besides the risks involved in the investment. On the other hand, the theory tends to outdo the notion that the value of an organization is dependent on the choice of financing decisions and capital structure of the organization. Typically, organizations and firms have three main ways of making and raising money in order to fund and fuel their individual operations; hence, expanding their growth and development. Additionally, they can lend money and borrow money through issuance of bonds or even obtaining loans. Alternatively, they may decide to re-invest in their profits in their individual operations or rather, they may issue new stock share to various investors.
The Modigliani and Miller’s Theory Critical Review
The critical reviews on the theory of Modigliani and Miller are as follows;
The popular proposition of the Modigliani and Miller’s theory is not relevant to the decision on dividend. Indeed, many scholar and research works have vividly proved the relevancy between a dividend decision and capital structure. Consequently, this proportion has received numerous criticisms from many people.The second assumption contend that the firms and people can borrow and lend using the same interest rate. Critically, this is not correct since firms can provide debt at a cheaper interest rate compared XX individuals. Firms XXX XXXX XXXXXXX loans at a cheaper XXXXXXXX XXXX XXXX XXXX have enough or adequate asset base.The XXXXX assumption XXXXXX that “XXXXX are XX bankruptcy and transaction cost” XXX it is XXXXX a XXX XX controversies. XX reality, it is not possible and XXXXXXXXXXXX. XXXXXXX, transaction XXXXX XX XXXXX.The Modigliani and Miller’s theory XXXX assumes that the XXXXXXXXX XX tax XXXXXXXXXX XXXX XXX XXXXXXXXX debt tends XX be constant and XXXXXXXXXX despite the XXXXX amount XX debt XXXX. XX reality, this XXX never XX correct since XXX XXX XXXXXXXXX XXX XXX XXX XXXX XXXX XXXX to firm, they consistently vary.Moreover, it XX XXXX assumed that XXXXX XXX no XXXXX XXXX are XXXXXXXXXX or XXXXXXXXXXXXX XXXXXXXXXX to XXX financial distress or crisis. XX a XXXXXX, XXX urgency XXXXX must be XXXXXXX. In reality, this is XXX XXXXXXXX.XXXXXXX, XXX XXXXXX assumes XXXX all the XXXXXXXXXXXX in a given market share have all XXX XXXXXXXXXXX XXXXXXXXX the XXXX. Practically, this XX not XXXXX.
Despite the XXXXXXXXXXX experienced XX the XX XXXXXX, it is XXX XX XXX XXXXXXXXXXX theories considered by many authors in XXX XXXXXXX financial XXXXXX. As a XXXXXX, it has XXXX XXXXXXXXX and XXXXXXXX by multiples XX XXXXXXXXXX. It received XXXX XXXXXXXXXX XXXXXXX XXX status XX the world during its inception XXX not XXXXXXX to XXX XXXXXXX XXXXXX XX XXX world. XXXXXXXXXXXX, it has XXXXXXXXXXXXXXX and XXXXXXXXXXXX discussed XXX XXXXXXX basic XXXXXXXX regarding XX the modern XXXXXXXXX XXXXXXX (XXXXXXX, XXXX).
Question X
a).
Indeed, when XXX XXXXXX XX XXX stock simultaneously move (XXXXXXXX XXXXXXXXXXX), it XXXX XXXX XXX XXXXXXXXXX of XXX portfolio XX shift higher, that XXXXXXX XXXX XXXXX XX XXXX. Therefore, this is XXX major XXXX XXXX XXX XXXXX XXXXXXX. However, in XXX XXXXXX economy, the stocks XXX intensively independent of XXXX XXXXX. XXXX XXXXXXXXXXX means that the level of XXXXXXXXXXX XX zero XXXXXXX the stocks. Consequently, the volatility of XXX XXXXXXXXX will XX a bit lesser. XX my XXXX, as a risk-averse investor, I XXXX XXXXXX XXXXXX XXX portfolio XXXXXX a XXXXX XXXXXXXXXX in order to XXXXXX a XXXXXXX XXXXXXXX XXXXXX.
XXXXXX, XXX motivation XX XXXXXX the creation of every single portfolio XX that XXXX can XX XXXXXXXXX without a XXXXXXXXX reduction in return. Mathematically, this XXX confirmed XXXX XXX XXXXXXXX XXXXXX on XXXXXXXXX was essentially XXXXX XX the weighted average XX the XXXXXXX expected XXXXXXX especially XX the XXXXXXXXXX XXXXXXXXXXX. On the XXXXX XXXX, XXX portfolio XXXX XXX XXXXXXXXX very less XXXX the weighted average XX the threat or risk XX the XXXXXXXXXX XXXXXXXXXXX (XXXXXXXX, XXXX).
X market XXXXXXXXX based XX the essence of completely XXXXX XXXXXXXXXXX is XXXXXXXXXX XXXXXXX to systematic risk. A XXXXXXXXXX risk XX a XXXX XXXX affects XXX whole market structure. XXXXXXX, XXXXXXXXXXXX XXXX is a risk XXXX is XXXXXXXX to a XXXXX XXXXX XX assets. XXXXXX, companies XXXXX XXXXXXX direct investment strategies are associated XXXX XXXX XXXXXXXXXX or XXXXXXXX. XXXXXXX, XXXX XXXXXXXXXX economies of scale XX a result XX their XXXXX XXXXX. XXX XXXXXXX XXXX XXXX a low cost of XXXXXXXXXX XXX XX the relative increase in the XXXXX of production. Secondly, XXX XX managerial expertise, the managers or executive leaders XXXXXXXXX to manage XXX company XXXX XXX XXX company to exponential XXXXXX or increase in its XXXXX; XXXX, XXXXXXXX it to incorporate and XXXXXXX effective marketing strategies. XXXXXXX, XXX XXXXXXX will XXXX financial XXXXXXXX. XX XX XXXXXXXX XXXX after XXX XXXXXXX direct investment, XXX XXXXXXXXX XXXXXX XX XXX XXXXXXX XXXX automatically XXXX and get stronger. XXXXXX, XXX XX XXX differentiation XX products, XXX company XXXX find it easy to XXXXXXXXXXXXX XXX XXXXXXXXXXX XXX products from XXX XXXXXXXX of other XXXXXXXXX; XXXXXXX, XXXXXXX XXXX XXX. XX a XXXXXX, XXXX may make the XXXXXXX more XXXXXXXXXX to XXXX XX many customers as XXXXXXXX an XXXX target a particular market. XXXXXXX, XXX company's XXXXXXXX technology XXX help it to do more research work XX the XXXXXXXXXXXXX of their products. XXXXXXXXXXXX, the XXXXXXX will XXXX XXXXXXXX XXXXXXXXXX XXXX it XXX incorporate XX XXXXXXXX XXXXXXX XXX XXXXXX XXXX
b).
As a XXXX-averse XXXXXXXX, I would XXXXXX bank owning XXXX X. XXXXXX, XXXX XXXX has 100 loans as opposed XX XXXX X XXXX has XXXX one loan. XXXX X has a significant advantage that when load XXXXXXXXX XX defaulted, XXX XXXXXX will be XXXXXX XXXXXXXXXXXXX XX all the 100 XXXXX. Critically, this give XXXX XXXX an XXXXXXXXXXX XX not XXXXXX everything XX XXX XXXX the XXXXXXX case persists XXXXXXX. However, for XXX bank X that XXX only one XXXX XX likely to XXXX XXXXXXXXXX in a situation whereby the XXXX XXXXXXXXX default persists. XXXXXX, XXXXXXXXX in the 100 XXXXXXXXX XXXXX XX an example XX a well-XXXXXXXXXXX portfolio; therefore, it XXXXXXXX XX XXXXXXXXX dismiss or eliminate the unsystematic XXXX. XXXXXXXXXXXXX, XXX only XXX XXXX XXXX XXXXXXX a XXXX-XXXXXXXXXXX XXXXXXXXX is XXXXXXXX XX be systematic. XXXXXXXXX, an XXXXXXXX XXX has a XXXX-diversified portfolio XXXX requires a return for only the XXXXXXXXXX XXXX.
XXXX case XXXXX to portfolio XXXXXX that XXXXXXXXXX that XXXXXX should XX selected XXXXX on how XXXX significantly XXXXXXXX with each other rather than how they XXXXXXX in XXXXXXXXX. XXXXXXXXX XX this XXXXXX, a XXXXXXXXXXX and XXXXXXX XXXXXXXXXXX would enable an investor XX gain considerable XXXXXX of XXXXXX XXX a particular XXXXX of XXXX. Similarly, it enables an investor XX XXXXXX XXX XXXXX possible level XX return. XXXX XXXXXXXXXXX’ investors may a time use XXXX of the perceptions XXX XXXXXXXXXXX based XX the portfolio XXXXXX in grouping XX investments.
c).
Indeed, XXX XXXXX XXXX XX a XXXXXXXXX XXXXXXXXX XX XXXX unsystematic and XXXXXXXXXX risks. Systematic risk XX XXX XXXX XXXXXXXXX a XXXX-XXXXXXXXXXX portfolio. Therefore, a trader or XXXXXXXX who holds a XXXXXX XXX well-diversified portfolio XXXX needs a XXXXXX particularly XXX systematic XXXXXX. The XXXXX XXXX of XXX XXXXXXXXX (XXXX XX measured by getting XXX standard XXXXXXXXX of XXXXXXX) XXXXXXXXX of unsystematic and systematic risk. XXXXXX, XXX XXXXXXXXXX XXXXX are the XXXXXXXXXX of total risks XXXX are significantly caused by factors that XXX uncontrollable by a specific individual or XXXXXXX. The systematic XXXXX XXX caused XXXXXXXXX by XXX XXXXXXXX factors to a XXXXXXX or organization (Ardalan, XXXX).
XXXXXXX, all XXX XXXXXXXXXX and investments XXX XXXXXXX to systematic risks and XXXXXXXXX, it XX considered XX a XXX-XXXXXXXXXXXXX XXXX. XX XXX other hand, systematic risk XXX never XX diversified XXXX by simply holding XXXXX XXXXXXXX XX XXXXXXXXXX. Indeed, the motivation XX XXXXXX the XXXXXXXX of XXXXX single portfolio XX that XXXX XXX XX minimized XXXXXXX a resulting XXXXXXXXX in XXXXXX. Mathematically, this XXX confirmed when XXX XXXXXXXX return XX portfolio XXX XXXXXXXXXXX XXXXX to the XXXXXXXX XXXXXXX XX the general expected returns XXXXXXXXXX on the XXXXXXXXXX XXXXXXXXXXX. XX the other hand, XXX XXXXXXXXX risk was XXXXXXXXX very XXXX than XXX XXXXXXXX average XX the threat or XXXX of XXX XXXXXXXXXX XXXXXXXXXXX. X XXXXXX XXXXXXXXX based on XXX XXXXXXX XX completely XXXXX XXXXXXXXXXX is XXXXXXXXXX XXXXXXX XX XXXXXXXXXX XXXX. X systematic XXXX is a XXXX XXXX affects the XXXXX market XXXXXXXXX. Whereas, XXXXXXXXXXXX risk is a risk XXXX XX XXXXXXXX to a given class XX assets. The XXXXX XXXX of a portfolio XXXXXXXX XX both XXXXXXXXXX risks XXX XXXXXXXXXXXX risks (XXXXX &XXX; XXXXX, XXXX). This simply XXXXX XXXX XXXX an XXXXXXXX XXXXXXX in XXXX companies XX different sectors; XXXXXXX it XX XXXX-diversified, it therefore XXXXX to XXXXXXXXX XXXXXXXXXXXX XXXXX XX XXXXXXXX XX the figure below. XXXXXXXXXX risks XX XXX XXXX XXXX that XXXXX to adversely affect a well-XXXXXXXXXXX portfolio. Generally, a XXXXXX or investor XXX XXXXX to XXXX a XXXX-XXXXXXXXXXX XXXXXXXXX will XXXX need a significant XXXXXX XXX XXXXXXXXXXXX systematic risk. However, a XXXXXX XXXXXXXXXX is affected XX XXXX the XXXXXXXXXX XXX XXXXXXXXXXXX risk but a XXXXXX XXXXXXXXXX may XX XXXXXXXX when an XXXXXXXX owns a well-XXXXXXXXXXX portfolio (XXXXX &XXX; Tarek, XXXX).
Images Not Shown
XXXXXXXX 5
Currency Risk- XXXXXXXX XXXX can be dined as the risk based XX the XXXXXX of a currency. XXXXX on XXXX XXXXXXXX, the investors or XXXX traders carry out investments or XXXXXXXXXXXX. XXXXXXXXX, XXX currency XXXX has XXX opportunity to fluctuate- depreciates or XXXXXXXXXXX in accordance XX XXX market XXXXXXXXX. XX other XXXXX, XXX operation level of a market dictates its XXXXXXXX level. XX a result, it possess a XXXXXX or XXXXXX threat XX XXXXXXXX or a trader if in XXX XXXX XXXX given XXXXXXXX XXXX XXXXX the XXXXXX or investor XXXXX or buys XXX or her units tend to depreciate during XXX XXXXXXX exchange XXXX. XXXXXXXX, it XXX XXXXXXX to a trader or XXXXXXXX XXXXXX a loss or a XXXX (XXXXXXXXXX, XXXXXXX,Luchowa & XXXXXXX, XXXX).
XXXXXXX, XXX XXXXXXXX risk XXXXXXXXXX that XX XXXX called XXXXXXX currency is indeed a XXXXXXXXX and XXXXX perception especially XX the XXXXXXX and XXXXXXXXX XXXXXX XXX times XXXXXX currency XXXXXXXXX. This XXXXXXX is XXXX important XXX it occurs in XXXXXX XXX the XXXXXXXX exchange markets XXXXXXX XXXXX XXXXXXXX or foreign XXXXXX, XXXXXXX it is XXXXXXXXX stock XXXXXX or Indian stock market. XXX policies and regulations XXXXXXXXX XX hedging and exchange XXXXX is XXXXXXX XX all the XXXXXXXXX (Mohamudall, XXXXXXX,Luchowa &XXX; Padachi, XXXX). XXXXXXXXX, the importance of currency exchange risk XXX XXXXXXX of it is a XXXXXXX rule or XXXXXXXXXX or a XXXXXX to all. XXXXXXXXXXXX, stock XXXXXXXX XXXXXX XXXXXXXX XXX XXXX essential XX investors XXX traders since XXXX help XXXX to XXXXXXXX risks XXX threats they may encounter. The policies provide a comprehensive XXX conclusive XXXXXXXXXX XXXXXXXX XX XXXXX XXX occurrence XX the XXXXX and XXXXXXX.
XXXXXXXX Forwards- X XXXXXXXX forward XXX be XXXXXXXXX as a XXXXXXXX that XX XXXXXXX in a foreign exchange market XXXXXXXXX the XXXXX in the XXXXXXXX rate XXXXXXXXXX for XXXXXX and selling XXX currency in XXX coming future times. Indeed, XXXXXXX XXXXXXXX XXXXX XX a full force risk. Obviously, when XXXXXXXX XXXXXXXXXXXX XXX fixed XX a XXXXXX XXXXXX dates, XXXX they XXX depreciating XXX appreciating, an XXXXXXXX XXX incur XXXXXX profits or losses. XXXXXXXXX, an investor or a trader will perform XXX or her XXXXXXXXXXX XXXXX a pre fixed XXXXXXXX rate.
Significantly, it XX XXXXXXX of XXXXXXXX XXX regulating XXX XXXXXXXXXXXX XX XXXXXXXX in order XX simplify things XXX the XXXXXXXXX or traders and make them XXXX comfortable regardless XX the XXXXXX XX XXX market XXXXXXXXXX XXXXX XXXXXXXX XXXXXX. On XXX other XXXX, XXXXXXX tool or mechanism does XXX in XXX XXX associate with margin XXXXXXXX during the XXXXX of exchanging XXXXXXXXXX in XXX XXXXXX XXXXXX XXXXX (Mohamudall, XXXXXXX,XXXXXXX &XXX; Padachi, 2019).
XXXXX on XXX XXXXXXX of XXXXXXXXX, XXXXXXXX XXXX XX XXXXXXX as XXX financial XXXX that XXXXXXX from the XXXXXXXXX changes in XXX XXXXXXXX rate XX a currency to XXX other. XX this XXXXXX, it is not only the traders or investors who XXX XXXXXXX XXXXXX XXX foreign XXXXXXXX market that are affected XXX they XXXXXX XXXXXXX XX the XXXXXXX economy XX the Mauritians. XXXXXX, XXX adverse XXXXXXXX or XXXXX XX XXXXXXXX XXX typically crush XXX XXXXXXXXX returns of a portfolio associated XXXX a heavy international XXXXXXXX. On XXX other hand, it XXXXXXXXXXX vanish or diminish XXX XXXXXXXX of a prosperous global XXXXXXXX XXXXXXX. XX Mauritius, XXXXX XXXXXXXXX and XXXXXXXXXXXXX XXXX carry out XXXXXXXX across borders are XXXXXXXXXX XX currency XXXXX XXXXXXXXXX XXXX XXX income that XX XXXXXX in a XXXXXXX country is XXXXXXXXX XXXX XXX XXXXXXXX currency and when XXXX XXX XXXXXXXX are XXXXXXXXX from domestic XXXXXXXX to foreign currency (XXXXXXXXXX Boolaky,XXXXXXX & XXXXXXX, XXXX).
The utilization of XXXXXXXX swaps as XXXXX in XXXXXXXXX XX XXXX applicable to XXXXXXX and investments in ETFs and XXXXXX funds. For XXXXXXX, XXXX a company based in Mauritius XXX a XXXXXXXXX XXXX is XXXXXXX XXXXXXXX in the XXXXXX XXXXXX stocks, XXX XXXXXXX tends to be exposed XX a XXXXXXXX XXXX. XX a result, XXX XXXXX of XXX XXXXXXXX XX XXX XXXXXXX may XXXXXXX as XXXXXX XX the XXXXXXXX exchange XXXXX changes XXXXXXX the XXXXXXXXX XXXXXXXX XXX XXX XXXXXX States currency. XXX company XXXXXXXXX; XXXXX to XXXXX their currency risk in order XX benefit XXXX owning XXXXX funds over a long XXXX (XXXXXXXX, Schachermayer &XXX; Wong, 2019).
XXXXXXXXXXXXX, XXXX XXXXXXXXX and traders tend XX XXXXXXXX and XXXXXX XXXXX XXXXXXXXXX XXXXX XXXXXXXX through adoption of the XXXXX of currency-hedged XXXX XXX the XXXXXXXXXXXXX XXXXXX XXXXX. XXXXXXXXX, a XXXXXXXXX XXXXXXXXX XXXXXXX XXX have XX buy foreign XXXXXXXXXX together XXXX heavy XXXXXXXX component XXXXXXXXXX for an equity fund may XXXXX against the XXXXXXXX rate XXXXXXXXXX conforming XXXX a XXXXXXXX XXXX. The XXXX drawback remains XXXX XXXXXXXXX XXXXXXXX shifts or movements XXXX not XXXX XX XXXX as beneficial an XXXXXX XX XXX XXXXXXXXX XXXXX the XXXXXXXXXX XXXXXXXXXX XX the hedging XXXXXXX volatility XXX XXXXXX in both ways. XXXX of the XXXXXXXXX in Mauritius XXX exposed to XXXXXXX markets and XXXXXXXXX they are XXXXXXXX XX hedge their risk with XXX currency swap moving forwards contracting. Simultaneously, numerous XXXXX XXX XXXX may also hedge currency risk through incorporation XX XXXXXXX XXXXXXXXX.
XXXXXX, a XXXXXXXX forward contract enables XXXXXX or XXXXXXXXX to check on XXX XXXXXX they XXXXXX XX pay XXX a currency. This simply means that the XXXXXXXX XXXX XX XXXXXX XXX in XXXXX XXX a given XXXX XXXXXXXX. Hence; XXXXX contracts can XX bought for XXXX XXX XXXXXXXX. XXX XXXX XXXXXXXX XX XXXXXXXX is XX XXXXX protection XX the value of XXXXXXXXX XXXXXXXX XXX exchange rates XXXX XXX currency to XX XX less XXXXXX. XXXX importantly, portfolio XXXX is hedged tends XX be more costly but still, it can
protect XXX individual’s investment in XXX situation XXXX a sharp decline in XXX value of a currency (XXXXXXX, Wang & XXXX, 2019).
XXXXXXXX X
The advantages
Perhaps, XXX XXXXX-Scholes XXXXXX pricing XXXXX enhances and XXXXXXX calculation of XXXXX XXXXXX XX XXXXXX prices XXXXXXXXXXX and efficiently without any difficulties. Indeed, it XX XXXXXXXX XXX XXXXXXXXXX XX XX so fast as compared XX any XXXXX XXXXXXXXX or XXXXXXXXXXX XX XXXXXXXXXXX XXXXXX prices. Additionally, XXX XXXXX-Scholes option pricing XXXXXX is very XXXXXX XXX easy XX use based on XXX application and assumption (Fernandez, XXXXXXX & XXXXX XXXXXXX, XXXX). As a result, it XXXXXX XXXXX to calculate and XXXXXXXXXX a XXXXXXXXX of XXXXXX prices XXXXXXXXX XXXX XXX XXXXXXXX.
XXXXXXXXXXXXX
The Black-Scholes option XXXXXXX model is XXXXXXXXXXXX XXXXXXXXXXX XXXXXX, thus; it XXXX not describes XXX option XXXXXX comprehensively, XXXXXXXXXX, and XXXXXXXXXXXX XXXXX XX the XXXXX Exchange XXXXXX. Unfortunately, the XXX XXXXXXXX XX the Black-Scholes XXXXXX pricing model is exponentially and relatively XXXXXXXXXX XX XXX XXXXXXXXXXXX and XXXXXXXXXXX of volatility. On XXX other XXXX, XXX XXXXX XXXX XXX XXXXXXXXXX and XXXXXXXXXXXX XXXXX a distinguishing features between explicit XXX implicit volatility XX XXXXXXXX by XXXXX models or XXXXXXXXXX (XXXXXXX, Wang &XXX; Yang, 2019). XXX Black-Scholes model only works efficiently and XXXXXXXXXXX with the implicit volatility. However, XXX implicit XXXXXXXXXX indeed XXXXX numerous forms XXXXXXXXX volatility smiles and XXXXX. XXXXXXXX, during the XXXXXXX XXXXXX before the derivation XX XXX model, it XXX actually XXXXXXXX XXXX the availability of the non-XXXXXXXXX XX XXX XXXXXXXXX is a key prerequisite XXXXXXXXX XX XXX differential XXXXXXXX XXXX XX XXXXXXXXXX XXXXX the Black-XXXXXXX XXXXXXX. Nevertheless, in XXXXXXX, XXXX XXXXXXXX XX violated leading to XXXXXXXXX (XXXXXXXXX, Carelli & Ortiz Pizarro, XXXX).
XXXXXXXXXX on XXXXX Relevant XXXXXXXXXXXX of BSM XXXXXXXX
XXX Black-Scholes XXXXX is used XX XXXXXXXXX XXX XXXXXX of an option contract. Particularly, it XXXXXXXX XXXXXXX XXXXXXXXXXX XXX variations of financial instruments XXXX XXXXX duration XX XXXX. The XXXX challenge it faces XX XXXX it assumes XXXX XXX XXXXXXXXXXX are likely to have a XXXXXXXXX distribution to XXX prices. The XXXXXXXXXXX made XX the model include XXX following: XXX XXXXXX XX European-XXXXX XXX may only be XXXXXXXXX during expiration, during the life XX the option no dividend XX actually paid, there is XXXXXXXXXXX XXXXX XXXX XXXXXXXXXX the XXXXXXX, XXX the XXXXXXX undertaken are distributed normally, XXXXX XXXXXX. Significantly, the XXXXX challenge to XXXX is XXXX the model critically XXXXXXX XXXX indeed XXXXX are XX XXXXX and transaction costs, which is a XXX far from XXXXXXX (Mazumdar, Zhang, & Guo, XXXX). XXXXXXXX, these assumptions XXXX XX prices XXXXXXXXX from XXX current XXX real XXXXX where all XXX XXXXXXX XXX XXXXXXXXX. XXXXXXX the option XXXXXXXXX XXX XXXXXXXX XXX traded using blocks. However, in XXXXX-Scholes model, the contracts’ XXXXXXXXXXXXXX XX XXX assets is the XXX assumption. On the XXXXX hand, the XXXXX XXXXX XXXXXX assumption XXXXX on the XXXXXX XXXX for XXXXXXXX, XXXXXXXXX Brownian XXXXXX pattern. XXXXXX the XX XXXXX, XXX stock exchange market XXXXXXXX XXX same XXXXXXXXXX in the XXXXXX XXXX XXXX XXXXX shifts are XXXXXXX observed.
XXXXX XXXXX XXXXXXXXXX-Monte Carlo XXXXXXXXXX is a XXXXX XXXXXXX XX XXXXX the XXXXXXXXXXX of different results within a XXXXXXX XXXX cannot XX easily postulated or XXXXXXXXX XXX to the prevailing XXXXXXXXXXXXX XX XXXXXX XXXXXXXXX. XXXXXX, it XX a XXXXXXXXX XXXX XX XXXXXXXXXX the results XX XXXX and XXXXXXXXXXX in XXX XXXXXXXXXXX and XXXXXXXXXXX models. Moreover, it XXX XX XXXX XX XXXXXX and tackle a variety of problems in imaginary every field or XXXXXX XXX instance, XXXXXXX, supply XXXXX, engineering, and science. The XXXXX is also called XXXXXXXX probability simulation. Perhaps, when subjected to fundamental XXXXXXXXXXX in XXX XXXXXXX XXXXXXXX a forecast or estimation, the XXXXX XXXXX XXXXXXXXXX then becomes the XXXXXX XXXXXXXXX or model XX XX XXXX to XXXX a solution to XXX case.
XXXX XXXXX, XXXXXXXXXX and organizations are XXXXXXXXX plagued XX random variables; XXXXXXXXX, Monte XXXXX Simulation has XXXXX number XX XXXXXX of XXXXXXXXX implications in XXXX XXXXXX. XXXXXXXXX, they are used XX XXXXXXXXX and XXXXXXXX the XXXXXXX cost XX probability in XXXX XXXXXXXX and XXX possibility XXXX XXX XXXXXX XX assets will shift towards a given XXXXXXXXX. For instance, XXXXXXXX usually use XXXX model in order to XXXXXXXXX and XXXXX XXX performance of the network during XXXXXXXXX XXXXXXXXX XXX conditions; hence, XXXXXX them XX carefully XXXXXXXX XXX network (XXXXXXXXX, XXXXXXX & Ortiz Pizarro, 2019). XX the other XXXX, analysts XXXX XX XXX them in order to XXXXXX and XXXXXXXX the risks XXXX an XXXXXXXXXXXX or business XXXX XXXXXXX and XXXX XX XXXXXXX derivatives such as XXXXXXX.
XXXXXXX, XXX most XXXXXXXXXXX XXX XXXXXXXXX way to employ XXX XXXXX Carlo XXXXXXXXXX is XX model possible XXXXXXXXX XX the XXXXXX XX assets XXXXX XXXXX or another effective XXXXXXX. XX such a XXXXXXXX, XXXXX are two components to the movements of an XXXXX. XXX first component is shift XXXX XX constant XXX consistent directional XXXXXXXX; XXX the XXXXX XXXXXXXXX XX random XXXXX, which indicates or represents XXX volatility XX a XXXXXX. Therefore, XXXXXXX analyzing the XXXXXXXXXX XXXXX XXXX, an individual XXX XXXXXXXXXXXX determine XXX standard deviation, variance, and XXX average price XXXXXXXX for a security.
XXXXXXXXXX
XXXXXXX, K. (2017). XXXXXXX XXXXXXXXX theory: XXXXXXXXXXXX. XXXXXXXX in International Business XXX Finance, XX, 696-XXX.
Alghamdi, A. K., XXXXXXXX, X., Al Farooque, O., XXXXXXXX, X., & Khan, A. (XXXX). Theories XXXXXXX XXXXXXX XXXXXXXXX XXXX XXXXXXXXX XXXXXXXXXXX. XXXXXXXXXX XXXXXXX of Accounting and Finance Review, X(4), XXX-XXX.
Brusov, P., Filatova, T., XXXXXXXX, N., &XXX; XXXXXXXXXX, X. (2018). XXXXXXX Structure: Modigliani–XXXXXX XXXXXX. In XXXXXX XXXXXXXXX Finance, Investments, XXXXXXXX XXX Ratings (pp. 9-27). Springer, Cham.
Cuchiero, C., XXXXXXXXXXXXX, W., & Wong, X. X. X. (XXXX). Cover's universal XXXXXXXXX, stochastic portfolio XXXXXX, and the XXXXXXXXX portfolio. XXXXXXXXXXXX finance, XX(X), 773-XXX.
Cuchiero, C. (XXXX). Polynomial processes in XXXXXXXXXX XXXXXXXXX XXXXXX. Stochastic processes XXX their applications, XXX(5), 1829-XXXX.
Dimmock, S. G., XXXX, N., &XXX; Yang, X. (XXXX). XXX XXXXXXXXX Model XXX Modern Portfolio XXXXXX (No. XXXXXX). XXXXXXXX Bureau of Economic Research.
Fernandez, X., XXXXXXX, X. X., &XXX; Ortiz Pizarro, X. (2019). The Market XXXXXXXXX is NOT XXXXXXXXX: XXXXXXXXX, consequences and XXXX XX avoid XXXXXX. XXXXXXXXXXXX XXX XXXX to Avoid Errors (May XX, XXXX).
XXXXXXXX, X., XXXXX, D., & XXX, X. (2020). Portfolio selection XXX XXXXXXXXXXXX risk optimisation using swarm XXXXXXXXXXXX. Journal of XXXXXXX XXX XXXXXXXXX XXXXXXXXXX, 1-14.
Mohamudally-XXXXXXX, A., XXXXXXX, X., &XXX; Padachi, K. (XXXX). XXXXXXXX XXX XXXXXXX Vector Machine XXX XXXXXXX XXXXXXX Inefficiency on XXX XXXXX XXXXXXXX of XXXXXXXXX. Applied XXXXXXXXX and Finance, X(X), 177-XXX.
XXXXX, X., & Tarek, X. (2019). The XXXXXX of XXXXXXXXX XXXX XX systematic risks: international evidence. Journal XX Applied XXXXXXX & XXXXXXX, 9(X).