The paper develops a real option collar model that may be employed by managers to measure the market price risk involved to their shareholders in offering or accepting stock. We further discuss accounting issues related to this contingency pricing effect. Using an acquisition example from U.S. banking industry we illustrate how the collar arrangement may be used to hedge market price risk through flexibility to renegotiate the deal by exercising managerial options.
Herath, H.S.B. and Jahera, J.S. (2004), "MEASURING AND ACCOUNTING FOR MARKET PRICE RISK TRADEOFFS AS REAL OPTIONS IN STOCK FOR STOCK EXCHANGES", Advances in Management Accounting (Advances in Management Accounting, Vol. 12), Emerald Group Publishing Limited, Bingley, pp. 191-218. https://doi.org/10.1016/S1474-7871(04)12009-1
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