Outline of investment thesis for VCCorp

By , June 28, 2012 5:20 pm

Monte Carlo method for Option Pricing: Pseudo-Code

By , June 25, 2012 1:44 pm
/*
 * Pseudo-code
 * Monte Carlo method for option pricing
 */

double S;	// price of underlying asset
double r;	// interest rate
double sigma;	// volatility
double t;	// time to maturity
double X;	// exercise price
double n;	// number of simulations
double i;	// loop parameter

/*
 * Code to get the variables from user input
 */

/*
 * Function to retrieve lognormal random variable
 */
double getLognormalRandomVariable(S, r, sigma, t)
{
	return S * exp( (r - 0.5 * sigma ^2) * t + sigma * sqrt(t) );
}

/*
 * Pricing European Call option
 */
double R;
double sd;
double St;
double sumPayoff = 0;

double  getEuropeanCallPrice(S, X, r, sigma, t, n)
{
	R = (r - 0.5 * sigma ^ 2) * t;
	sd = sigma * sqrt(t);

	for (i = 0 ; i < n ; i++)
	{
		St = S * exp (R + sd * randomNormal() );
		sumPayoff += max (0, St - X);
	}
	return exp (-r * t) * (sumPayoff / n);
}

/*
 * Calculate Delta
 */
double q;
double c;
double cq;
double sumPayOffQ = 0;

double getEuropeanCallDelta(S, X, r, sigma, t, n)
{
	q = S * 0.01;

	for (i = 0 ; i < n ; i++)
	{
		St = S * exp (R + sd * randomNormal() );
		sumPayoff += max (0, St - X);
		Stq = (S + q) * exp (R + sd * randomNormal() );
		sumPayoffQ += max (0, Stq - X);
	}
	c = exp (-r * t) * (sumPayoff / n);
	cq = exp (-r * t) * (sumPayoffQ / n);
	return (cq - c) / q;
}

double[] motions;

double[] getBrownianMotion (S, r, sigma, t)
{
	motions = new double[n];

	for (i = 0 ; i

Merchant’s risks when running Groupon deals

By , June 9, 2012 10:49 am

  1. The sales team loses sale skill, leads to redeal addiction.
  2. Conflict between business development department and servicing departments (production, customer service, supply chain, logistics).
  3. At least 100% capacity is utilized during deal leading to overload, distress, attrition, accelerated depreciation, process change, and even company culture.
    Shift from actively serving customers to responding to waves of customers.
    Overloaded customer service leads to deteriorated service quality.
    Dominated by mass + low margin products and lose the opportunity to sell sophisticated + high margin products.
  4. Lose transparency of pricing structure, leading to loss of trust from customers and potential customers, and even company employees. Marking up then reducing price make the company "forget" the original target price. Intra-company information diffusion worsens this.
  5. High inflation leads to appreciation of supply costs. The company may get stuck if the groupon service provider refuse to increase selling price. Worse, groupon service providers are good in Search Engine Optimization and potential customers can easily search for expired price list.
  6. The customer segment directed from groupon mostly includes deal hunters. If the product / service is not essential they will not return to pay full price.
  7. Brand dilution. Unable to sell mid-end and hi-end products.
  8. Lack of experience in running deal leads to tricky situation when following consultation of groupon salesperson (pricing, maximum number of vouchers to sell, terms, deal duration). Interests of merchants and those of groupon salesperson are not always aligned.
  9. Peer pressure: running deal seeing competitors’ deal, leading to industry deterioration.

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