Friday, May 06, 2005
how NOT to write a report
Before you question about our understanding of the term 'real option', please allow us to clarify what we mean by 'real' option. The finance terminology 'real option', means an alternative or choice that becomes available with a business investment opportunity. For example, an R&D project may include options to downsize, expand or abandon other projects or even the project itself. However, our understanding here of 'real' option is from another perspective. It means an actual (= real) option in real life which gives the option holder a right to buy or sell asset(s) at a predetermined price within a given period of time in the future.
(That's actually quite an original way of opening the introduction section. That's also quite an original way of letting the reader know what a big moron you are. Its a fucking report, not a storybook. By the way, first user terms lie 'I, We, Us' are totally unacceptable. And what does 'actual(=real) mean?)
Assumptions of the option(insurance) :
To begin with, we would like to state clearly the assumptions of the option (insurance) we are talking about. A typical car insurance policy in reality covers against a wide range of events which are stated below (Due to the word constraint, we omit the explanation of them. For details, please click the link http://insurance.countrywide.com/auto/the6parts.aspx ):
(In case you were wondering, after reading the last line, let me clarify that this was a written report that was to be printed out and submitted. Not even the 10 Gods of Hell would know how to click a link on a piece of white A4 paper)
It's very complicated to value the option (insurance) with this kind of policies (hard to determine the exercise price and the volatility), thus we assume the car insurance (option) cover against only damages to the car in any form of events, such as accidents, flood, fire, vandalism etc with coverage less than the original value of the car. We also assume that there's only 1 claim can be made to facilitate our valuation.
(The English is astounding. Truly unbelievable.)
There're different kinds of valuation methods for American put option, such as Binomial pricing method, Game theory, Modified Black-Scholes. Here we're going to use Binomial pricing method, as it's the only one we learnt to value American style put option. Our assumptions and explanation of the parameter values are as follow:
(I wonder what gave her the impression that the reader would have been concerned about what the fuck she had or had not learnt. Its just not appropriate to write stuffs like that in reports.)
Second, the number of damage claims that can be made within the cover period in reality is unlimited. But for the simple option features we learnt so far, it's impossible to exercise the option more than 1 time. To be frank, this can be a big problem to the valuation of insurance using the Binomial pricing method. Luckily, in reality people are risk-averse and they surely don't want to have accidents even they've bought insurance because accidents may incur huge costs to them, e.g. the guilty feeling of causing injury to other people, the painful suffering of getting injured in accidents, the time consumed for making a claim. Therefore, the option won't be abused.
(I trully do not know where to begin. The English, as always, is of supremely top quality. "To be frank"? In a report?? Thought you talking to your best friend is it? I don't know about you guys, but "the painful suffering of getting injured in accidents" cracked me up pretty good)
Third, another limitation of the method used is the difficulty in establishing the volatility of the option. A standard deviation of 20% per year has been used in our case. There are two possible ways of reaching a suitable number, yet both are difficult to be named precisely.
(A damn clever method. If you do not know what the two methods are called, just say that they "both are difficult to be named". Quite precisely too.)
However, as mentioned before, car insurance in reality cover against occasions much more than we are discussing here, that means there's no equivalent one for comparison. But it's still interesting to see how big is the difference between them. We got car insurance premium quote= £1603.35 for a typical policies, which insure against the 6 items above-mentioned, of our new car model. It is obvious that the actual one is about 3 times as big as what we calculated!
(Apparently, "there's no equivalent one for comparison". Neo is 'the one'. Can't compare to him, alright? And wow! Its sooo exciting! The actual one is 3 times as big as what we calculated! Wow! I guess its so exciting that I should put an exclaimation mark showing my emotions!)
Kaneneh. That's not it! The whole report was filled with first-user terms, and full of gramatical errors. Its quite fucking amazing how she made it so far without flunking.
yuenli : It depends. Last year I was in a group with a couple of idiots who wanted to draw an A2 poster using Microsoft Paint. But for my final year group project this year, I have had the pleasure of working with a group of brilliant people.