The purpose of this paper is to present a review of selected applications of contingent claims analysis in corporate finance. Contingent claims analysis is an approach to valuing payoffs which are contingent on other uncertain payoffs. The essential logic of the different applications reviewed is that we can value these derivative payoffs by replicating them with assets, whose prices are known. This simple logic is capable of providing one with insights into the pricing of new types of financial assets (e.g. optional bonds) as well as providing new insights into the valuation of strategic corporate investments.
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