Case Name :      J&L Railroad: The Board Meeting

Authors :           Kenneth Eades, Rick Green, Jeannine Lehman

Source :             Darden School of Business

Case ID :           UV2566

Discipline :        Finance

Case Length :    14 pages

Solution Sample availability : YES

Plagiarism : NO (100% Original work)

This short case could be handed out at the end of class discussion on “J&L Railroad” in preparation for the following class, or if students are more experienced with hedging and option pricing, the instructor may choose to cover both cases in a single class period. It is the companion case to “J&L Railroad” and presents more technical issues regarding the hedging problem by requiring students to understand option-pricing principles. The board likes the CFO’s hedging recommendations, but it wants a more careful analysis of the bank’s prices for its risk-management products: the caps and floors. Besides demanding an understanding of option pricing, this case puts particular emphasis on the calculation and use of implied volatility.