Valuing Equity as an Option
Originally published: 07/07/2016 08:51
Last version published: 25/10/2016 10:18
Publication number: ELQ-37853-2
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Valuing Equity as an Option

An option pricing program to value the equity in a firm

This program calculates the value of equity as a call option on the value of the underlying firm.

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.

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School (

This Best Practice includes
1 Excel Model, 1 Webcast Video

Prof. Aswath Damodaran offers you this Best Practice for free!

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Further information

- Value of equity as a call
- Value of outstanding debt
- Appropriate interest rate for debt
- Risk neutral probability of default

1. All the assumptions underlying the Black-Scholes model apply
2. The value of the firm is known.

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