The real question is the process by which a company arrives at the inputs to the model it uses, not which of the possible models it chooses. That’s right, the “which model?” debate confuses the real issue, that which is closest to your auditor’s heart: how you derived your valuation's assumptions. For both planning and reporting purposes, large companies derive more accurate expense expectations from better analysis of their data.

Given a particular company’s data, a correctly implemented lattice-based valuation yields a result converging on that of a Black-Scholes valuation with equivalent assumptions. The lower values often attributed to lattice-type models are in truth the result of the inability of the Black-Scholes model to easily integrate grantee exercise behavior as well as volatility, interest rate, and dividend term structures. CVI derives input assumptions for Black-Scholes via auditable processes.

CVI’s lattice-based valuations are run with the very same auditable processes, to yield equally auditable results. The reasoning behind our processes at CVI is simple: we follow best practices across the board. CVI uses your data to generate assumptions that you, your Board, and your auditor will agree on.

Please contact us for a web-based presentation of the differences between Black-Scholes and “tree” valuation models, and how our methods bridge the valuation gap.