Completion probability from a merger-arbitrage spread

The target's traded price is itself an event state price: with offer value offer on completion and fallback value on deal break, $$q = \frac{P - F}{O\,D - F},$$ where D discounts the offer to today (deal-horizon discount factor, default 1).

Usage

q_from_deal_spread(target, offer, fallback, discount = 1)

Arguments

target

Target's traded price(s).

offer

Offer value per share on completion.

fallback

Estimated standalone ("deal-break") value per share.

discount

Discount factor applied to the offer (default 1).

Value

Numeric vector of completion probabilities. Values outside \([0,1]\) trigger a warning (check fallback), but are returned unchanged (flag, don't drop).

See also

q_from_price(), q_from_ffutures()

Examples

# target at 47, cash offer 50, fallback 35: q = 0.8
q_from_deal_spread(47, offer = 50, fallback = 35)
#> [1] 0.8