#ActiveAllocator Research – The typical investment banking M&A process is dull, static and has not evolved much in the past two decades that I have been observing it. What is needed is innovation – sadly conspicuous by absence in a largely secretive world. I have long believed that financial options, modern finance can bring much to investment banking. To illustrate/ amplify my point I show how the time period for closure during announced M&A deals can be hedged using simple put and call options. Happy to provide more esoteric examples and variants too. We describe in a very simple illustration the mechanics of setting up and implementing a hedge.
Step 1: Deciding between Floating vs. Fixed Exchange Ratio Collar
Step 2: Designing a Hedge – Objectives
Step 3: Designing a Hedge – Parameters
Step 4: Designing a Hedge – Deciding on Collar Width
Step 5: Designing a Hedge – Pricing the Hedge (Illustrative)