Derivatives Valuation

Many security issuances and M&A transactions involve derivatives that require a valuation for financial reporting or tax purposes.

These analyses typically involve option pricing models such as Monte Carlo simulations or binomial tree lattice. Our quantitative finance professionals specialize in developing customized models and deriving supportable inputs to value these derivatives.

Our services address the valuation of the following securities:

  • Embedded derivatives in connection with ASC 815 (conversion option of a convertible bond, change of control put option, make-whole payment upon conversion, etc.)

  • Debt component of a convertible note issuance in connection with ASC 470

  • Preferred stock for tax and financial reporting purposes

  • Call/Put options in connection with the remaining minority interest after the acquisition of a controlling interest

  • Securities with built in downside protection – payoff designed as a function of future stock price

  • Warrants with reset features that require liability accounting

  • Financial instruments such as interest rate swaps/options, currency swaps/options and equity derivatives

  • Credit derivatives such as CDS contracts and swaptions

Duff & Phelps valuation models are tailored to our clients' needs. We help companies select the most appropriate approach and estimate all required parameters (such as volatility, dividend yield, correlation, credit spread and illiquidity discount). We deliver a well-supported valuation that fulfills ASC 815, ASC 470, corporate income tax, estate tax, or other country specific financial/tax reporting requirements.

We have deep experience with the full range of equity valuation techniques, including:

  • Monte Carlo simulation analysis which captures path dependency and correlation

  • Binomial lattice models, customized to capture key features such as early exercise behavior

  • Closed form solutions such as the Black-Scholes formula

  • Least Squares Monte Carlo simulation which captures both path dependency and early exercise behavior

  • Default and recovery rate modeling

We are experts in determining which approach is most appropriate, and tailoring the analysis to the specific situation at hand


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