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Black Scholes valuation calculator
The Black Scholes equation is a well known formula for calculating the theoretical value of an option based on a few parameters.
How to use the calculator
- Enter the share price, exercise price, years to exit and number of options.
- Adjust the risk free interest rate and volatility to suit your company. The placeholders show typical starting points.
- See the indicative Black Scholes value for all options held.
Assumptions
- Options themselves are non-dividend bearing, and therefore will only be exercised at time of Exit.
- Taxation is not taken into account.
- Leaver provisions are not taken into account.
Inputs
This is the theoretical share price on a "per share" basis, and is the prevalent market value of the shares at the time of valuation. This does not necessarily have to be the actual price today, you can experiment to see how the share price would affect the option value.
This is the cost of exercising one option into one share, on a "per share" basis.
This is the estimated time until a liquidity event. An example of this would be an Exit or Sale.
The total number of shares in the option-holding being valued.
We have selected 1% as a placeholder. This changes frequently, and would depend on the time to Exit. See here for current yield rates for UK Government Gilts, often used as a benchmark for this input.
We have selected 35% as a placeholder. Volatility is a measure of variation in share price. For private companies whose shares do not have an active market and are not readily traded, volatility is usually benchmarked against a handful of listed companies which operate in a similar sector. Volatility is typically higher for younger companies, high-risk industries, and high growth sectors.
Result
How accurate is a Black Scholes value?
The theory behind the maths does involve a few assumptions, which can be more or less appropriate depending on the stock in question, structure of the option, and market conditions. That means this is not a perfectly accurate calculation, but can provide a useful indicative value.