Complex Securities

At Appraisal Economics, our independent valuation experts have broad expertise in the valuation of complex securities and other derivative instruments. (Please see our stock options and warrants and performance awards and stock-based compensation pages for more detail on some of these securities.) We have provided valuations and related services for a multitude of complex securities, including:

  • Preferred stocks, options, and common stocks in complex capital structures
  • LLC profits interests grants (modeling of LLC distribution waterfall)
  • Embedded derivatives
  • Synthetic option structures
  • Equity derivatives, interest rate derivatives, and swaps
  • Structured products, including residential and commercial collateralized debt obligations (CDOs) and auction rate securities (ARS)
  • Warrants, debt instruments, convertible preferred stocks, and stock appreciation rights (SARs) with unique put and call features, redemption provisions, and conversion features
  • Carried interest and incentive fee interest in private equity funds and hedge funds
  • Contingent purchase consideration (such as earn-outs and clawbacks)
  • Contingent claims

In recent years, the use of complex securities has become increasingly widespread among publicly traded companies and private companies alike. Complex securities are now featured prominently in mergers and acquisitions, employee and executive compensation packages, and as specialized investments, custom-tailored to the needs of specific investors.

The category “complex securities” encompasses a broad range of instruments, each with its own set of distinct characteristics. Consequently, complex securities also tend to be some of the most difficult instruments to value. Our valuation professionals have extensive experience with the intricacies and nuances of a wide array of complex securities.

Through our analytical expertise, market knowledge, and proprietary valuation models, Appraisal Economics can value the most sophisticated financial instruments. We perform complex security valuations for a variety of different purposes, including:

  • Financial reporting, principally under ASC 718 (formerly SFAS 123R), IFRS2, and
    ASC 505-50
  • Gift and estate tax valuations
  • Section 409A and other tax-related purposes

Due to the unique nature of each instrument that we value, we apply a wide range of techniques in our valuations of complex securities, including:

  • Closed form models such as Black-Scholes-Merton
  • Lattice models, such as a binomial model
  • Synthetic option modeling
  • Monte Carlo simulations
  • Probability-weighted expected return method (PWERM)

Appraisal Economics can help establish appropriate inputs for the valuation process, such as expected volatility, estimated dividend yield, stock price correlations, exercise behavior, expected forfeitures, and estimated security lives. This information is fully supported by a detailed narrative report suitable for review by independent auditors, the Securities and Exchange Commission, and the Internal Revenue Service.

Whether you need a valuation of a complex security, an employee compensation plan, or a simple stock option, Appraisal Economics can provide fully supported high quality work in a timely and reliable manner.

Appraisal Economics has an experienced team of highly qualified professionals with decades of valuation experience. We provide a full range of valuation services, including purchase price allocations, solvency opinions, portfolio valuations, and business valuations. To learn more about how our team of experts can meet your complex security and other valuation needs, please Contact Us.