Expected Volatility

FAS 123R Standard

MITI Solution

Volatility is a measure of the amount by which a financial variable, such as share price, has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period… Option pricing models require expected volatility as an assumption because an option’s value is dependent on potential share returns over the option’s term… This Statement does not specify a method of estimating expected volatility; rather, paragraph A32 provides a list of factors that should be considered in estimating expected volatility. An entity’s estimate of expected volatility should be reasonable and supportable.

FAS 123R para. A31

Montgomery Investment Technology, Inc. (MITI) can guide you through the complex task of calculating historical and implied volatilities and blending these volatilities appropriately to determine a justifiable estimate of the company’s volatility over the expected term of the grant.