The Role of Monte Carlo in the Appraisal of Complex Financial Instruments
This article addresses the valuation of a floating-strike lookback option and the obligations of the appraiser in disclosing the risks in the option valuation. Current practice of reporting the mean value as the “fair value” does not meet any requirement for risk evaluation, and it is this point that is the main focus of the article.Abstract
Contributor Notes
Hugh J. Osburn, MBA, FCMA, ASA, CFA is proprietor of ADOPT Training in the UK, which provides training in the valuation of businesses, acquired intangible assets and complex options. He can be reached at hjo@adopttraining.co.uk; ADOPT Training's website is at www.adopttraining.co.uk.
Geoffrey Peter Young Clarke, PhD, is currently Senior Research Biometrician in the Department of Agriculture Western Australia. He can be reached at pclarke@agric.wa.gov.au.