Insights: Quantitative Advisory

Your caring partner for complex valuation challenges

In an increasingly complex and uncertain world, conventional valuation methods usually reach their limits. Specific procedures are required in particular when dealing with increased planning uncertainty, asymmetric payout profiles (e.g. employee options or valuation of companies at risk of insolvency), contractual clauses (e.g. earn-outs), and complex financial instruments or other derivatives. It is often necessary to add mathematical and stochastic methods such as Monte Carlo simulations or option price models in order to determine precise values and thus make economically sound decisions. As part of this, this special issue provides a comprehensive insight into current developments and practical issues in this area.

The following articles not only highlight special issues relating to share-based payments, but also take a look at innovative aspects such as the integration of ESG criteria into the valuation of derivatives. These aspects are becoming increasingly relevant, particularly in light of the growing importance of sustainable business practices.

Furthermore, specific issues such as the determination of the discount for lack of marketability (DLOM), the use of option pricing models in start-up valuation and the valuation of earn-outs using Monte Carlo simulation are examined.

We hope you enjoy the read!

DLOM: The marketability discount in (company) valuation

In the Anglo-American valuation literature, it is recognised that investors demand a discount on the market price for non-marketable shares due to the higher risk. These Discounts for the Lack of Marketability (DLOM) are highly relevant in IFRS 2, IFRS 13 or 409A valuations. Read more »

Consideration of early exercise in the valuation of employee stock options

According to International Financial Reporting Standards (IFRS) 2, all employee options must generally be recognised in the income statement. As part of this, an option valuation is necessary. The expected maturity is a key input parameter here. Read more »

The influence of ESG on the valuation of derivatives

Environmental, social and governance or ESG criteria are becoming increasingly important in the opportunity and risk analysis of companies and markets. As a result, they are also influencing the pricing of derivatives. Read more »

Repricing of employee stock options

Share-based remunerations are popular among start-ups as they are ideal for acquiring and retaining suitable employees. Through employee stock options (ESOPs for short), companies grant their employees the option to buy equity instruments at a fixed price (exercise price) and thus participate in the company's value growth. Read more »

The application of the option pricing model for the valuation of complex capital structures

The option pricing model (OPM) is a method for allocating the equity value to different classes of securities in a company's capital structure. The OPM is particularly important in the valuation of start-up companies, as different rights, such as liquidation preferences, are often granted to new investors or instruments such as convertible bonds are issued in successive financing rounds. Read more »

Monte Carlo simulation for the earn-out valuation: distribution assumptions and thresholds

Earn-outs are variable purchase price components that cushion uncertainties about future performance in corporate transactions. Distribution assumptions such as the normal or log-normal distribution are used to model the development of relevant key figures such as sales or EBITDA. Read more »