Volatility is one of the most critical and challenging tasks of the valuation process.
Estimating volatility is a task that is well worth the effort given its impact on option
value. Under ASC 718, you will need to consider historical volatility data, implied
volatility from tradable option data and certain qualitative factors such as changes
in the firm's composition, including:
Capital
structure
Lines
of business
Market
cap
To calculate Historical Volatility:
1. Enter an as-of date. The default is the current date. However, the as-of
date should be changed to the end of the reporting period or last day of the
period you are analyzing. You may also select an as-of date by clicking on
the calendar icon and selecting a date from the calendar.
2. Select any periods you may want to exclude from the calculation.
a. Enter a Begin Date. This
is the beginning date of the period you wish to
exclude. You may also select a begin date by clicking on the calendar
icon and selecting a date from the calendar.
b. Enter an End Date. This is the
ending date of the period you wish to
exclude. You may also select an end date by clicking on the calendar
icon and selecting a date from the calendar.
c. Click the Add button. This transfers the begin date and end date to
the list box on the right. Multiple dates may be selected.
To Remove any dates from the list box
- Click on the date range you want to remove.
- Click on the Remove button.
3. Enter a Lookback period. You
can customize your lookback period in
years, months, weeks or days depending on your quantification of the
optimal period of analysis. Volatility over the prescribed period may then be
calculated based on daily, weekly or monthly stock price return intervals.
4. Click the Calculate button.
The historical volatility is calculated and
displayed to the right of the Calculate button.
To save the calculations:
- Click the Save to Selection button. The historical volatility calculation is
removed from the page and ‘moved’ to the Historical Volatility
Parameters section at the bottom of the page. Note: This information can
also be seen on the Your Selection page.
To remove saved calculations:
- Click the red Remove ‘X’. However, be aware that there is no confirmation
before it is removed.
To create the Audit Report:
- Click the Audit Report button. A comprehensive audit report displaying the
daily, weekly, or monthly returns and stock prices over a user-defined
period that is used in the historical volatility calculations. The report displays
in a spreadsheet view (.csv format).