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Research Details

Speculating on an acquisition with options: Rjr nabisco

Abstract

This case provides a detailed practical example of some interesting option pricing issues arising from a tender offer for RJR Nabisco by KKR. Put-call parity was apparently violated during this period, but this was related to the specifics of the takeover offer. This case focuses on two issues: understanding the nature of the parity violation and why it could not have been arbitrated in the classical sense, and how a particular options trading strategy could have been used to speculate on the success of the KKR tender offer.

Type

Case

Author(s)

Robert L. McDonald

Date Published

1996

Citations

McDonald, Robert L.. 1996. Speculating on an acquisition with options: Rjr nabisco.

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