Changing Black-Scholes Software
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Changing Black-Scholes Software
Posted by BaylorTiger on 4/25 at 3:51 pm
Anyone have experience with this...volatility is all sorts of jacked up from one year to the next and I'm assuming it's the difference in methodology, assumptions or whatever.


Any help would be greatly appreciated.



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Posted by foshizzle on 4/25 at 4:17 pm to BaylorTiger
I'm quite familiar with the Black-Scholes formula but I've never heard of software by that specific name. Can you elaborate?


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Posted by kfizzle85 on 4/25 at 4:21 pm to foshizzle
Me either, we just have various models built in excel (some of them adjust for a size premium because we do a lot of work with smaller companies). Additionally, I was looking at some financials for a rather large private ofs company we're working with, which was audited by a large (not B4) accounting firm here in Houston, and in 07/08 the audit says the volatility assumption for the options was 0. I .


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Posted by foshizzle on 4/25 at 4:22 pm to kfizzle85
quote:

the volatility assumption for the options was 0. I .


So did I.



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Posted by kfizzle85 on 4/25 at 4:32 pm to foshizzle
Its funnier because the next year (same auditor), the CY vol assumption is 60 and the PY assumption is all of a sudden 50. Although I also found a discrepancy on the fricking cash balance from one audit year to another. I have no idea how someone signed off on these, this is a rather highly leveraged, capital intensive, $500MM/revs company. Definitely a as well.


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Posted by TheHiddenFlask on 4/25 at 4:43 pm to kfizzle85
quote:

Its funnier because the next year (same auditor), the CY vol assumption is 60 and the PY assumption is all of a sudden 50. Although I also found a discrepancy on the fricking cash balance from one audit year to another. I have no idea how someone signed off on these, this is a rather highly leveraged, capital intensive, $500MM/revs company. Definitely a as well.


Real Talk:

I once had a company submit internals that had an entry on the balance sheet that was labeled "plug to make balance".








The kicker is, the statements still didn't balance. They had somehow forgot to add one of the subtotals into the total. After 6 hours of trying to find my mistake, I wanted to bludgeon their accountant to death with their financials.



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Posted by kfizzle85 on 4/25 at 4:50 pm to TheHiddenFlask
We used to just fold it into equity. eta: But that's amazing, I can't believe people do internals by hand anymore.

This post was edited on 4/25 at 4:52 pm

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Posted by Rockyn on 4/25 at 5:13 pm to TheHiddenFlask
quote:

The kicker is, the statements still didn't balance. They had somehow forgot to add one of the subtotals into the total. After 6 hours of trying to find my mistake, I wanted to bludgeon their accountant to death with their financials.
If the balance of the plug figure is relatively immaterial IMO that's not worth getting worked up over. It would make me extremely weary at the overall validity of the internals and their preparer(s)' competency, but that's forgivable for some of your customers. If it's a small firm it's not always efficient for a mom and pop bookkeeper to spend all day fixing that on interim/non-audited/non-compiled-by-CPA-firm internals. Materiality is the key.

I do hate internals in general. In my current capacity I take a lot of internals and tweak them to your liking so I know where you're coming from.

But the plug not balancing is inexcusable.


This post was edited on 4/25 at 5:16 pm

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Posted by Rockyn on 4/25 at 5:18 pm to kfizzle85
quote:

We used to just fold it into equity.
That's our solution too. My personal favorite.

When we're doing tax guidance and are dealing with Equity as it relates to basis/capital accounts it's obviously a totally different story, but if you're talking quick financials, plugging into Equity/RE is a beautiful thing.

Accounting theory in general is a beautiful thing. It's frustrating and confusing at times, but it really is.


This post was edited on 4/25 at 5:21 pm

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Posted by kfizzle85 on 4/25 at 5:25 pm to Rockyn
Agreed on all parts and we deal with internals regularly, especially when we have to cut up an LTM period. Recently we were working on one and I was telling the MD how I was pretty positive they were worthless because the file said (12-31-11_before_accountant_adj) and how much we used to change stuff when people sent us their internals since they try to expense everything for tax purposes, put interest payments towards principal paydown, etc. What's weird to me is that its basically impossible to have it not balance in any accounting software, certainly not quickbooks or some of those other atrocious accounting programs (I can't remember the name of the other one we used to use but it was fricking awful, although it was for F/S prep, not internal use).

eta: and as you can tell from my posting today I'm not doing shite. CapIQ plugin is acting a fool and CapIQ tech support is gone. Me = not caring at the moment and procrastinating on everything else.


This post was edited on 4/25 at 5:27 pm

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Posted by foshizzle on 4/25 at 5:42 pm to kfizzle85
quote:

I have no idea how someone signed off on these, this is a rather highly leveraged, capital intensive, $500MM/revs company.


And this, ladies and gentlemen, is Exhibit A in why you should quit trying to pick stocks.



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Posted by kfizzle85 on 4/25 at 5:44 pm to foshizzle
*shrug* I would say its not even remotely the same thing, but whatever.


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Posted by foshizzle on 4/25 at 5:45 pm to TheHiddenFlask
quote:

I once had a company submit internals that had an entry on the balance sheet that was labeled "plug to make balance".


Didn't one of the financial blogs cover a situation where that comment actually showed up in the published financials? Some company in Australia, I believe.



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Posted by BaylorTiger on 4/26 at 10:39 am to foshizzle
GENTLEMEN! THREAD JACKERS! We are WAY off topic here...lol, I did enjoy a few laughs though.

I Assure you if you ever find yourself with our financials rest assured that the only thing plugged into RE is "NI"...I SWEAR!

No worries though because I figured out what I need to say/do to explain it all away...


quote:

the volatility assumption for the options was 0


If you see someone with a Volatility of 0 it's possibly because they switched softwares and forced the FMV into their new software as a starting point instead of doing it the right way...


How SOMEONE didn't catch that is mind boggling...



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Posted by foshizzle on 4/26 at 11:29 am to BaylorTiger
I still don't understand what "software" you are talking about. Black-Scholes is an option pricing formula, not software.


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Posted by kfizzle85 on 4/26 at 11:34 am to foshizzle
I know I keep thinking the same thing. Baylor you want an .xlsx file bro? I will happily send it to you.

eta: And I think they put 0 as vol because its a private company and they thought "well it doesn't trade so it must have zero vol."


This post was edited on 4/26 at 11:35 am

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Posted by BaylorTiger on 4/26 at 12:02 pm to kfizzle85
Our equity software has a module for it as well as some other functions but my only reason for even updating it is to get all these damn calculations out of it...so I call it the BScholes Software...I'm dependent on it as it's my first time to be on the other side and actually have to produce it versus just "review" it.

So in conclusion Kfizz I'd love a template so I can just update an excel file!

[removed]

THANKS!



This post was edited on 4/26 at 12:28 pm

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Posted by kfizzle85 on 4/26 at 12:22 pm to BaylorTiger
Sure thing, give me a minute. Do you want a binomial and an american option too? eta: you can take your email down.

This post was edited on 4/26 at 12:25 pm

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Posted by BaylorTiger on 4/26 at 1:11 pm to kfizzle85
Sure! If it's not to much trouble. I wish I had something to trade.


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Posted by igoringa on 4/26 at 7:04 pm to kfizzle85
0 volatility for private is common. Not saying I agree or that it is right, but it is common ( as is static valuations year on year), particularly with pipes at consistent prices year on year. And please sell out the large firm or just give my there uhy er I mean initials


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