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I am trying to determine the volatility to use Black-Scholes to value some warrants for a private company. Very few comps are public or they are large diversified businesses. Any thoughts on how to do this or ranges to start from? Thanks Connie Dubois

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There is an easy method to calculate volatility if you have a historic time series of price data. First, obtain the standard deviation of the log returns.


Imagine you have these observed prices,

{30.00, 31.70, 27.38, 27.50, 23.96, 23.30, 30.63, 24.04}

Calculate the log return,

ln(31.70/30.00), ln(27.38/31.70), . . . ln(24.04/30.63).

Calculate the standard deviation of the series,

sd = 0.07325

Keep in mind that this is a simple method, and it does not allow for skewness or kurtosis in the frequency distribution of returns, but neither does the Black-Scholes option pricing model.

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  • $\begingroup$ As he said it is a private company ... $\endgroup$ – phdstudent Feb 9 '16 at 16:45

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