Mean-Reverting-Ebit-Based Stock Option Evaluation: Theory and Practice

Hassan El Ibrami

Journal of Applied Finance & Banking, 2013, vol. 3, issue 5, 21

Abstract: This paper examines the derivation of a capital-structure EBIT-based call option expression with the El Ibrami and Naciri [2012] equity value as the underlying asset. The model’s PDE and ODE are similar to Black-Scholes but have widely different and non-constant coefficients. An empirical analysis of the new model is conducted to measure its performance, using the last close price of the evaluated stock options and the Black-Scholes values as benchmarks. The results show that the author’s model is robust, whereas the Black-Scholes model overestimates the stock options.

Date: 2013
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