I encounter a problem in one of my project to find the 1 year, 2 year and 3 year Asset volatility. We are given 2015 Bell Canada's financial report and a software to do this. The financial report can be found here http://www.bce.ca/investors/financialperformance/annual where asset=47993M, liability=30664M equity=17329M, stock volatility= 15%
According to my lecture notes, we should do the following steps:
input data from the financial report into software to find Delta for 1,3,5 year(bottom left section), assuming no dividend
using the formula σSS =σVV*(∂S/∂V), plug in value of delta into ∂S/∂V and find σV for 1, 3, 5 year.
However, I do not know what data I should put into the software. In the lecture, I see my prof first uses # of share outstanding* share price=S(equity), and use equity debt ratio to find B(debt) then he put V=B+S(total asset) into the section 'stock price', the given stock volatility into 'volatility', Ke^(rt) (the future debt) into 'exercise price'. Then he compute delta.
I don't quite understand why he did this. Can anyone explain to me what kind of data I should use(market value of equity/book value of equity, market value of asset/book value of asset, market value of debt/book value of debt)? I am really confused.