Hi everyone, Can anyone tell about a good option pricing model for non-public companies? Links would be particularly appreciated. Thanks All the best for the results.
I don't think there is a definitive answer to this question, there are many ways of doing it. I would probably approach it using a real world measure approach. The reason for this is that for a non-public company, the risk-neutral pricing method doesnt really hold - you cannot setup a replicating portfolio so the opportunity for arbitraging mispriced options is gone. So answer is to do some fundamental analysis, project growth in shareholder's equity and do a good old fashioned actuarial pricing exercise - perhaps based on mean + function of s.d. of payoff. Note that as the shares are not traded, it would be hard to analyze historical vol etc. You would need to look at accounting history I guess.
