Session 24: Distressed Equity as an option

[@FabioPestanaBezerra]

Congrats Mr. Damodaran! Its a very impressive work which helps us a lot. Just finishing your course, i believe it was really important to point and remember some issues of valuation. ty. keep doing this wonderful work!

[@chineduecheruo8872]

Thank you Sir. You taught me a lot!

[@vishwasmaheshwari1152]

The variance of distressed companies will be much higher than the industry average that has been suggested here to be used. Dont you think we should be using the historical average of variance in similar distressed companies ? After all that variance or volatility is what is providing value to our equity.

[@beomkomap]

My d1=ln(100/80/(10+10%)^10)/0.4....=1.5624 Are we using Variance or Standard Deviation in d1 formula please? Thanks.

[@drewbalkin5868]

My problem with this is that the derivation of black scholes is based on replication portfolios and 0 arbitrage. Can you really apply Black Scholes here if you can't "replicate" this pay off naturally?

[@AswathDamodaranonValuation]

You can use Black Scholes only if you can replicate this payoff naturally.

[@drewbalkin5868]

@@AswathDamodaranonValuation Thanks for the reply! I can't think of how a replication portfolio would be created in this case for distressed equities. But I like the idea of using black-scholes

[@abdulazizalbloshi5576]

I M LOST HERE LOL