equity - OPTIONWORKSHEET:EQUITYASANOPTION VALUING EQUITY AS...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
OPTION WORKSHEET: EQUITY AS AN OPTION VALUING EQUITY AS AN OPTION This program calculates the value of equity as a call option on the value of the underlying firm. Assumptions 1. All the assumptions underlying the Black-Scholes model apply 2. The value of the firm is known. The user has to input the following variables 1. Current value of the underlying firm (or its assets). 2. Variance in the ln(value) of the underlying firm. 3. Face Value of the outstanding debt. 4. Riskless interest rate that corresponds to average duration of debt. 5. Face-value weighted duration of the debt outstanding of the firm. 6. Expected dividend yield on the stock of the firm. Inputs relating the underlying asset Enter the value of the firm = $1,200.00 (in currency) There are two ways of estimating standard deviation. One is to use the firm's own stock and bond prices to estimate it. The other is to use the variance of the industry to which your firm belongs. Which approach would you like to use to estimate variance?
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/29/2012 for the course FIN 6000 taught by Professor Banko during the Fall '11 term at University of Florida.

Ask a homework question - tutors are online