Application of the Option Methodology to Guarantee Valuation

This dissertation focuses on guarantees with a special emphasis on the option method of guarantee valuation. The existing domestic and international literature does not present a comprehensive debate on guarantee valuation with a sufficient discussion of the role of the guarantor. In addition, a minimal number of sources are devoted to the option valuation of guarantees applied to non-traded companies (and their structures) typical for the Czech Republic, which might inter alia have led to the marginal practical experience of the Czech valuation experts with the method. Following the identified blind spots of the current knowledge, the thesis primarily (i) presents coherent theoretical underpinnings of guarantee valuation, (ii) provides a proposed option valuation approach to guarantee valuation and (iii) demonstrates through a case study of the HAME holding an application of the proposed approach, including an evaluation of its strengths and weaknesses. Based on an analysis and synthesis of the domestic and international literature, a poll among the Czech valuation institutes and a numerical application on the historic HAME holding case, the author observes the following main findings: (i) on a theoretical bases, the option guarantee valuation method presents a plausible way of analysis, (ii) the proposed option valuation approach is applicable in the Czech praxis. Despite these positive prima facie findings, the option valuation approach shall be subject to further testing, comparisons with competing methods and improvements resulting from an increased number of its practical applications.