Option model (See Chapters 25 and 35 of the Vernimmen)An option model used for valuing a company is based on the asymmetry of rights of creditors and shareholders (see asymmetry - shareholder/creditor). The shareholders’ equity of a levered company can be seen as a call option, granted by creditors to shareholders, on the company’s operating assets. The strike price is the value of the debt and its maturity is the exercise date. Using this options-based approach, the value of equity can be split into intrinsic value and time value. Intrinsic value is the difference between the present value of capital employed and the debt to be repaid upon maturity. Time value is the hope that when the debt matures, enterprise value will have risen to exceed the amount of the debt to be repaid.
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Definitions of terms begining with the same letter as "Option model" :
OGM OTC OTC market Off-balance sheet commitments Off-balance sheet financing Off-balance sheet financing techniques Offering One on one One to one Operating assets Operating balance Operating breakeven Operating cash flow Operating charges Operating expenses Operating income Operating inflows Operating lease Operating leverage Operating liabilities Operating margin Operating outflows Operating outlay Operating payments Operating profit Operating receipts Operating receipts Operating result Operating revenues Operating working capital Operational efficiency Opportunity cost Opportunity cost of capital Optimal capital structure Option Option model Option on option Option to abandon Option to defer progress of the project Option to develop or extend the business Option to launch a new project Option to postpone a project Option to reduce or contract business Order book Ordinary general meeting of shareholders, OGM Organic growth Organic growth Organised market Other operating expenses Other operating income Out of the money Outside shareholders Outsourcing Over the counter Over-the-counter market, Over the counter, OTC, OTC market Overall dilution Overhang Overlay bank
Definition of Option model - Finance dictionary