I have noticed that in several books on Corporate Finance, such as Brealey and Meyers, or Berk and DeMarzo, they use the volatility of equity as an input to Black and Scholes.Furthermore, in case the company is not traded, they suggest to use volatility of equity of the comparable traded company.Should not this be done only in case of FCFE?And when the FCF are examined, wouldn't it be more accurate to unlever the volatility? After all, we want to assess how the underlying asset (and not the equity) will behave.When the project or company is highly leveraged, the equity is much more volatile. Using the volatility of equity will overestimate the value of the option.Thanks.

yes

If I understand correctly, "yes" refers to unlevering - I should use volatility of asset rather than that of an equity.Please correct, if I got you wrong.Thanks for the answer.

yes, vol of assets means vol of assets