G11, G12, G13, G22, G23, G32
The well-established methodology for valuing options, the Black & Scholes formula, has been successfully challenged by Warren Buffet; who not only has been critical of the formula for the case of long-dated options, but has also applied a different approach in multi-billion derivative contracts. We study Berkshire Hathaway’s Equity Put transactions from a value-investing point of view. We show that Buffett is not using them as speculative investments, but as a disruptive -and cheap- financing source. We uncover Buffett’s methodology for valuing long-dated Equity Puts as long-term loans.
Roca, Florencia and Sanchez Meyer, Juan Carlos
"Buffett’s Derivatives: Disruptive Financing at Low Cost,"
Journal of New Finance: Vol. 1
, Article 4.
Available at: https://jnf.ufm.edu/journal/vol1/iss1/4