Abstract:
The article investigates the “fairness” of the VAMs (Valuation Adjustment Mechanism) adopted by China’s enterprises in venture financing. We treat VAM as binary options and price 20 VAMs using Binomial Tree Model. We find that almost all VAMs are mispriced such that there are high “premium” charged by the financial institutions as investors. To justify the “fairness” of the premium, we present risk factors to explain the “premium”. We finally find that less than half of the “premium” can be justified by the risk factors, which means a significant part of the premium might be attributed to “over-protection” of the investors.
Cox, J.C, S.A.Ross, and M. Rubinstein, 1979, “Option Pricing: A Simplified Approach,”Journal of Financial Economics, 7, pp.229~64.
Cox, J.C, S.A.Ross, and M. Rubinstein, 1979, “Option Pricing: A Simplified Approach,”Journal of Financial Economics, 7, pp.229~64.
[14]
Heston, Steven L., 1993, “A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options,”The Review of Financial Studies, 6 (2), pp. 327~343.
Heston, Steven L., 1993, “A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options,”The Review of Financial Studies, 6 (2), pp. 327~343.
[15]
Hsu, D.H., 2004, “What Do Entrepreneurs Pay for Venture Capital Affiliation?”The Journal of Finance, 59(4), pp. 1805~1844.
Hsu, D.H., 2004, “What Do Entrepreneurs Pay for Venture Capital Affiliation?”The Journal of Finance, 59(4), pp. 1805~1844.
