Volatility

Volatility measures the amplitude of fluctuations in an asset or financial instrument's value around its mean — typically expressed as the annualised standard deviation of returns. In financial instrument valuation, it is the central parameter of option pricing models (Black-Scholes, binomial): higher volatility increases option value (both calls and puts). It is estimated historically (from past return variations) or implicitly (extracted from market option prices). For unlisted assets, it is estimated using comparable listed company volatilities or sector-specific models.

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Example: to value 50,000 stock options in an unlisted Swiss company (CHF 80 strike, CHF 120 current value, 2-year maturity), Hectelion estimates 35% volatility by reference to implied volatilities of listed sector comparables. Black-Scholes model: option value CHF 46 per unit — total value CHF 2.3 million, recognised as IFRS 2 personnel expense amortised over the 4-year vesting period at CHF 575,000 annually.

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Hectelion estimates and applies volatility in option, BSPCE, warrant and complex financial instrument valuations for IFRS 2 reporting and transaction purposes.