Case | HBS Case Collection | January 2010 (Revised October 2011)

The Congressional Oversight Panel's Valuation of the TARP Warrants (A)

by Carliss Y. Baldwin

Abstract

The Congressional Oversight Panel wants to value the warrants issued to the government in connection with the TARP investments of 2008, in order to increase the transparency of options repurchases. The case describes the methodology used to value the warrants. Students have the opportunity to value warrants issued by 10 of the largest banks and to evaluate whether the Black-Scholes model can be used to value these very long-lived 10 options. Can be used to teach basic option valuation using Black-Scholes, but also raise dynamic hedging issues of interest to advanced students.

Keywords: Financial Crisis; Asset Pricing; Financial Instruments; Investment; Business and Government Relations; Mathematical Methods; Valuation; Banking Industry; Public Administration Industry; United States;

Citation:

Baldwin, Carliss Y. "The Congressional Oversight Panel's Valuation of the TARP Warrants (A)." Harvard Business School Case 210-035, January 2010. (Revised October 2011.)