Scenario Valuation for a Put with an EBITDA-Linked Strike

Summary

The document considers valuing a written put whose exercise price depends on the company’s EBITDA, net debt, and minority shareholders’ ownership percentage at exercise. Because the strike depends on future company information, it is not a fixed-input vanilla option valuation problem.

The answer recommends building company forecasts under several cases, such as aggressive, benchmark, and downside scenarios. Each case should project financial drivers including revenue, costs, margins, and debt, then use discounted cash flow analysis that includes the option’s effect. The note offers this as a corporate finance approach rather than a formal option-pricing model. It gives no worked valuation, probability assignments, discount-rate guidance, or treatment of uncertainty in the audited accounts and ownership percentage, so those choices would need to be specified for an actual valuation.

Key ideas

• The put’s strike varies with EBITDA, net debt, and minority ownership at exercise.
• Company forecasts can be organized into aggressive, benchmark, and downside scenarios.
• Scenario financial projections can be valued with discounted cash flow analysis that includes the option.
• The suggested approach does not specify scenario probabilities or a complete option-pricing framework.

Tags

# How to get the fair value for an option with variable strike?


# How to get the fair value for an option with variable strike?












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

## Answer by phdstudent (score 3)

https://quant.stackexchange.com/a/77560

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).

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.