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I'm dealing with a plain vanilla written put but my strike is linked to this formula:

$$K=(7 \cdot EBITDA\cdot Net Debt)\cdot [\%P]$$

where

EBITDA = EBITDA of the company as of the last closed and audited accounts prior to the put exercise notice and the resulting EBITDA will be multiplied by 7

Net Debt = Net debt of the company as of the last closed and audited accounts prior to the put option exercise notice

%P = percentage interest of the minority shareholders at the date of exercise of the put option right

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    $\begingroup$ Jeepers, this looks complicated. What a mess. $\endgroup$
    – nbbo2
    Nov 30, 2023 at 17:41
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    $\begingroup$ With fair value, do you also want to model what the strike will look like? In that case, good luck. What's the purpose of this? $\endgroup$
    – AKdemy
    Nov 30, 2023 at 18:39

1 Answer 1

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You need a corporate finance type analysis for this. I am assuming you are valuing that option for a PE company or something of that sort.

Create scenarios for the company (revenue, cost, margins, debt, etc). Make several scenarios: agressive, benchmark, downside, etc. Value with discounted cashflows (including the option).

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    $\begingroup$ I agree with this. Risk neutral pricing would do more damage than good here $\endgroup$
    – oronimbus
    Dec 1, 2023 at 8:01
  • $\begingroup$ @phdstudent, I have some questions unrelated to this thread that I am struggling with. As a go-to expert on asset pricing, would you mind taking a look? Two of them have bounties on them. $\endgroup$ Dec 7, 2023 at 12:17
  • $\begingroup$ @RichardHardy, seems like Kevin got it and I do not see an issue with his argument. $\endgroup$
    – phdstudent
    Dec 7, 2023 at 15:52
  • $\begingroup$ @phdstudent, yes, thank you. I have a few related questions that are linked in the comment to the bountied post. I would much appreciate your help with them, too! $\endgroup$ Dec 7, 2023 at 16:19

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