Blaha, Z. S. - Jindřichovská, I.: Application of Option Methods in Equity Valuation; Politická ekonomie, 6, 1997, ISSN 1210-0455;
|Author(s):|| † Dr. Zdenek Sid Blaha M.A., D.B.A., |
|Type:||Articles in refereed journals|
|ISSN / ISBN:||ISSN 1210-0455|
|Published in:||Politická ekonomie|
|Abstract:||The paper first briefly describes three approaches to valuation in general terms. The first, discounted cashflow valuation, relates the value of an asset to the present value of expected future cashflows on that asset. The second, relative valuation, estimates the value of an asset by looking at the pricing of comparable assets relative to a common variable. The third, contingent claim valuation, uses option pricing models to measure the value of assets that share option characteristics.
The paper then examines equity as a call option on the firm, where exercising the option requires that the firm be liquidated and the face value of the debt (which corresponds to the strike price) be paid off. Several cases studies are presented and applicability of contingent claim methods in equity valuation is explored in the paper.