One of my professors in graduate school made the statement "I can teach my students finance, but I can't teach them the art of finance." This statement resinated with me then and it still does. Graduate finance students are immersed in the academics of economic theory, probability and statistics, econometrics and stochastic calculus. The art of finance is more elusive and is more a function of business and life experience than academics. The financial valuation professional must have both the technical skills (academic finance) and the creativity and experience needed to adeptly apply those skills (the art of finance).
Examples of valuation areas that we specialize in:
Derivatives: Any business valuation professional can plug numbers into the Black-Scholes equation and derive the value of a plain vanilla option. Closed-form solutions such as Black-Scholes are exceptions and often do not exist for derivatives that have complex payoffs or are path dependent. To value complex derivatives one usually needs to employ numerical methods such as Monte Carlo, Finite Differences, Numerical Integration, etc.
Guarantees: If a loan or other financial obligation is guaranteed by a third-party guarantor then the value of the guarantee must be determined as well as the periodic compensation paid to the guarantor.
Debt Securities: The discount rate applicable to debt securities with inherent default risk is a function of the risk-free rate, the probability of default, the expected recovery at default and a risk premium. Debt securities range from the simple (ex. a non-interest bearing note), to the complex (ex. notes with embedded derivatives) to the very complex (ex. mezzanine CDO debt).
Risk Quantification and Pricing: Guarantees are examples of Off-Balance-Sheet items that not only have to be valued but also an assessment as to risk and pricing has to be made.
Complex securities and contingent consideration: Valuation of Earn-outs and other complex securities.
Accounting Support: Often times deals get done and the accounting staff is left to pick up the pieces. We provide accounting support for complex financial instruments. This support includes GAAP Accounting, Hedge Accouting, etc. We have plenty of experience in acting as a liason between the finance group and the accounting group such that each group understands and addresses the needs of the other.