Using Sectoral Indexes to Discount the Exercise Price of Employee Stock Options

Analytic Pricing of Employee Stock Options∗†

We introduce a model that captures the main properties that characterize employee stock options (ESO), in particular, the likelihood of early voluntary exercise and the obligation to exercise immediately if the employee leaves the firm, except if this happens before options are vested, in which case the options are forfeited. We derive an analytic formula for the price of the ESO and analyze it...

The Importance of Behavioral Factors in the Exercise and Valuation of Employee Stock Options∗

Options are a major component of corporate compensation and accounting methods significantly affect allocations, yet valuation remains a challenge. We develop the first empirical model of employee exercise suitable for valuation, and estimate the exercise rate as a function of option, stock, firm and employee characteristics in a large sample of all employee exercises at over 100 firms. These c...

Heterogeneous beliefs and employee stock options;

This paper uses a market valuation model to explore why firms grant employee stock options. When insider managers and outside investors have different opinions about the future prospects of the firm, employee stock options can be used to capture future investor overvaluation and to save employee compensation costs. Options can enhance the stock value for existing shareholders if the difference ...

Market Valuation and Employee Stock Options

This paper investigates a market-valuation-based hypothesis for employee stock options (ESOs). It examines how market valuation has affected the decision to grant ESOs, the amount of options granted, and the distribution of options among executives and rankand-file employees. I find strong empirical evidence that firms with high market valuation and high probability of future overvaluation are ...

How Not to Get Fleeced with Employee Stock Options