Hong Kong Valuation Guide
Financial instruments, ECL and fund valuation
Model-based valuation for contractual rights, optionality, credit risk, illiquidity and hard-to-price investments.
Options and warrants
Black-Scholes, lattice, Monte Carlo and bespoke models for employee, investor and transaction instruments.
Convertible instruments
Host debt, conversion features, calls, puts, caps, floors and contingent terms considered together or as separated components.
Preference shares
Liquidation preferences, participation, conversion, redemption, dividends and seniority across financing rounds.
Expected credit loss
Probability of default, loss given default, exposure at default, forward-looking scenarios and segmentation under HKFRS 9.
Debt and distressed assets
Contractual cash flows, collateral, restructuring scenarios, recovery analysis, credit spread and liquidity considerations.
Fund and portfolio assets
Unquoted equity, private debt, venture interests, side pockets and other Level 3 investments for NAV and reporting.
Governance around models
Complexity is not a substitute for transparency.
The model should reflect contractual economics, calibrate to transaction evidence where appropriate, and explain how unobservable inputs affect value.
- Complete term sheet and legal rights mapping
- Model selection with limitations explained
- Calibration to issue price or recent transaction
- Volatility, credit spread and liquidity support
- Scenario and sensitivity analysis
- Independent model checking and version control
Hong Kong fund context
Valuation policies should address independence and conflicts.
SFC materials emphasise appropriate valuation methodologies, consistent application and controls around conflicts of interest for fund assets.
Send the instrument terms and valuation purpose.
Include the agreement, cap table, issue date and price, valuation date, underlying business information and any prior model.