The valuation of the liability structure can be determined by real
options because the shares of a company can be regarded as similar
to the purchase of a financial call option. Therefore, from this
perspective, debt can be viewed as the sale of a financial put
option. As a result, financial analysts are able to establish
different valuations of a company, according to these two financing
methods. Valuation of the Liability Structure by Real Options
explains how the real options method works in conjunction with
traditional methods. This innovative approach is particularly
suited to the valuation of companies in industries where an
underlying asset has high volatility (such as the mining or oil
industries) or where research and development costs are high (for
example, the pharmaceutical industry). Integration of the economic
value of net debt (rather than the accounting value) and
integration of the asset volatility are the main advantages of this
approach.
General
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