Option Pricing Method
Also written OPM · Option Pricing Method (OPM)
A forward-looking early-stage valuation method that considers the current equity value and allocates it across the various classes of equity using a continuous distribution of outcomes, rather than distinct future…
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Bottom-up approachSizing a market by taking the revenue of individual companies and aggregating it upward — accurate where companies disclose, blind where they do not.
- Churn RateThe percentage of customers who discontinue using a product or service over a given period — the metric that decides whether acquired customers are an asset or a leaking bucket.
- CLTV/CAC ratioCustomer Lifetime Value divided by Customer Acquisition Cost — how many rupees of customer revenue a start-up buys for every rupee it spends winning that customer.
- Cost approachValuing a business from its assets less its liabilities — by book value, by what it would cost to replace, or by what it would fetch if broken up and sold.
- Customer Lifetime ValueThe total revenue a start-up earns from one customer across the whole relationship — average purchase value multiplied by the average number of purchases that customer makes.
- Deal CompsRelative valuation using earnings based multiples — chiefly EV/EBITDA and EV/Sales — which the workbook also calls Transaction Comparables.
Where this is taught
- Series XIX-D · Chapter 11: Valuationintroduced here
- Series XIX-C · Chapter 14: Valuationintroduced here
- Series XIX-A · Chapter 11: Valuationintroduced here
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