A Digitalized Employee Option
نویسنده
چکیده
This paper introduces a new employee option plan for lowand mid-level employees. The option plan is a possibility for the employee to exercise an accrual account at any time before maturity contingent on the stock price being above a strike level. The option is American in nature and is a combination of an accrual account and a digital option with a strike price. The optimal stopping problem associated with the valuation of the option has a discontinuous payoff. The key argument to solve the stopping problem is the principle of smooth fit at a single point. The optimal exercise strategy is displayed and the valuation formula is derived.
منابع مشابه
Valuation of Employee Reload Options Using Utility Maximization Approach
The reload provision in an employee stock option is an option enhancement that allows the employee to pay the strike upon exercising the stock option using his owned stocks and to receive new “reload” stock options. The usual Black-Scholes risk neutral valuation approach may not be appropriate to be adopted as the pricing vehicle for employee stock options, due to the non-transferability of the...
متن کاملOptimal Multiple Stopping Models of Reload Options and Shout Options
The reload provision in an employee stock option entitles its holder to receive one new (reload) option from the employer for each share tendered as payment of strike upon the exercise of the stock option. The number of reloads allowed can be finite or infinite. The shout feature in a call option allows its holder to reset the option’s strike price to the prevailing stock price upon shouting. W...
متن کاملEmployee stock option valuation with repricing features
Repricing of an employee stock option refers to the practice of lowering the strike price and /or extending the maturity date of a previously granted employee stock option. Normally, firms reprice after a period of significant stock price decline that renders the employee stock options deeply out-of-the-money. By modeling various repricing mechanisms based on some form of Brownian functional of...
متن کاملThe 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...
متن کاملA Model for Valuing Multiple Employee Stock Options Issued by the Same Company
In this paper we develop a model in which up to 30 employee stock options issued by the same firm can be valued simultaneously and demonstrate that standard methods of valuation can result in under-valuation, especially for long-dated options and for options where the proportion of outstanding options is large relative to the number of outstanding shares of equity. We also develop a version of ...
متن کامل