Tutorials

What is Consummated FX Translation Entry?

This represents accounting for currency gains or losses that are realized or consummated. Example of this type includes the currency gains realized on the amounts payable to broker and the amount actually paid to the broker as recorded in the functional currency. The difference between the amount payable and the actual amount paid recorded in [...]

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Meaning of a Credit Default Swap

by R. Venkata Subramani

What is a Credit Default Swap? A Credit Default Swap (CDS) is a form of protection against credit risk CDS is a bilateral contract where by the credit risk of a reference entity (the issuer) is transferred from the protection buyer to the protection seller The protection buyer pays a fixed premium to the protection [...]

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Definition of Options and origin of options

by R. Venkata Subramani

An option is the right, but not the obligation, to buy or sell something at a predetermined price at anytime within a specified time period. Origin of Options: Chicago Board of Options Exchange (CBOE) was created in 1973 and CBOE standardized the option contracts, improving the liquidity and enabling the general public to participate in [...]

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Salary Income under Indian Income Tax Laws – some points

by R. Venkata Subramani

Employment is must for income to be assessed under the head ‘Salaries’. For employer – employee relationship to exist, the employer must have the powers to – (i) define the terms of the employment, and (ii) terminate the employment. However, what is relevant is employment and not so much the presence of an employer, as [...]

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What are Passive investments?

by R. Venkata Subramani

Investments in equity securities that are purchased and held for short term principally for the purpose of generating gains on resale are classified as trading securities and reported at fair value with unrealized gains and losses included in the earnings. Investments in equity securities that are not trading securities are classified as available-for-sale (AFS) securities [...]

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Definition of Equity Securities

by R. Venkata Subramani

Equity securities are represented by ownership shares as common stock or preferred stock, rights to acquire ownership shares such as stock warrants or rights or call options. It also includes rights to dispose of ownership in shares by way of put options. It should be noted that equity securities do not include preferred stock that [...]

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Binomial Model of option pricing

by R. Venkata Subramani

Binomial option pricing model is an options valuation method developed by Cox, et al, in 1979. The binomial option pricing model uses an iterative procedure, allowing for the specification of nodes, or points in time, during the time span between the valuation date and the option’s expiration date. Like the Black-Scholes model, this model also [...]

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Black Scholes Model of option pricing

by R. Venkata Subramani

The Black-Scholes model is used to calculate a theoretical call price, ignoring dividends paid during the life of the option, using the five key determinants of an option’s price viz., stock price, strike price, volatility, time to expiration, and short-term risk free interest rate. The original formula for calculating the theoretical option price is as [...]

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Pricing of Option

by R. Venkata Subramani

Option pricing is based on some key parameters as discussed before in this chapter. To recapitulate essentially the following factors play a key role in determining the theoretical value of an option: Underlying price of the stock Strike price of the option contract Time to maturity Interest Rate Anticipated volatility of the underlying Dividends – [...]

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Greeks in Option pricing

by R. Venkata Subramani

Option pricing is based on some key parameters as discussed before in this chapter. Essentially the following factors, known as ‘Greeks’ should be grasped to understand the option pricing: Delta Gamma Theta Vega Rho Omega These factors are discussed below in detail. Delta Delta is a measure that reflects the relationship between a change in [...]

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