The Use and Application of Option Pricing Modeling
Training Event Transcripts
December 16, 2010
Scott L. Beauchene, CFA, ASA
James Walling, CFA, MBA
The use and application of the Black-Scholes option pricing model in business valuation has come under increased scrutiny as of late. Since its inclusion in the AICPA's practice aid in 2004, critical examination and a deep economic downturn have drawn its use and appropriateness into question. Indeed, this model was the subject of rebutting articles in Business Valuation Update in January 2010 and March 2010: "Does Black Scholes Overvalue Early Stage Company Allocations?" and "Lognormal Distributions vs. Empirical Observations—A Defense of the Option Pricing Method," respectively. In The Use and Application of Option Pricing Modeling, James Walling and Scott Beauchene, each a co-author of these articles, joined BVR to discuss both how to appropriately utilize this valuation tool and its applicability in light of a practice aid update and a turbulent economy.