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


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.

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

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