PIMS-MITAC Math Finance Seminar
Valuation of Employee Stock Options
Abstract: In the last twenty years, stock options have become an important device
for firms to compensate and incentivize their employees. Motivated by recent
recommendations by both European and American accounting standards boards that
these options be expensed in firmsí statements, we provide an analytical and
flexible framework for their evaluation. Instead of looking at single options
in isolation, we consider the flow of options an employee can expect to receive
throughout his/her employment. This includes features such as vesting, possibility
of reset if the firmís stock value diminishes, suboptimal exercise, reload
potential and trading and hedging restrictions on the employee.
Joint work with Wei Xiong.