BINOMIAL DECISION TREE ANALYSIS AS ALTERNATIVE METHOD TO MEASURE VALUE OF FINANCIAL ASSET IN REFERENCE TO PSAK NO. 71 COMPARED WITH BLACK-SCHOLES METHOD

Abstract

Refer to PSAK No. 71 that regulates the recognition and measurement of financial instruments, option value shall be determined on the basis of its fair value from its market price. However, as Indonesia does not apply market price for option, it is critical to look up for alternative method in measuring the value of option. One of the option pricing method that can be applied is binomial decision tree. This research will test whether binomial decision tree method can be applied to comply with the PSAK No. 71. In addition, there will be comparison with Black-Scholes model. Analysis was performed on stock of BBCA, a banking company listed on the Indonesia Stock Exchange as the underlying asset of option and result shows that binomial decision tree method is able to fulfill PSAK No. 71 compared with Black-Scholes method.