The cost of employee stock options

  • This paper determines the cost of employee stock options (ESOs) to shareholders. I present a pricing method that seeks to replicate the empirics of exercise and cancellation as good as possible. In a first step, an intensity-based pricing model of El Karoui and Martellini is adapted to the needs of ESOs. In a second step, I calibrate the model with a regression analysis of exercise rates from the empirical work of Heath, Huddart and Lang. The pricing model thus takes account for all effects captured in the regression. Separate regressions enable me to compare options for top executives with those for subordinates. I find no price differences. The model is also applied to test the precision of the fair value accounting method for ESOs, SFAS 123. Using my model as a reference, the SFAS method results in surprisingly accurate prices. JEL classification: G13; J33; M41; M52

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Author:Peter Raupach
Parent Title (German):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 123
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (123)
Publisher:Johann-Wolfgang-Goethe-Universität, Frankfurt am Main, Fachbereich Wirtschaftswissenschaften
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2003
Year of first Publication:2003
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2020/10/23
Tag:Employee stock options; Executive stock options; Exercise behavior; Fair value accounting; Timing risk
GND Keyword:Personalaufwendung; Lohnstückkosten; Optionspreistheorie; Festwert; Teilwert; Neubewertung; Bewertungseinheit; Aktienoption; Aktienoptionshandel; Aktienoptionsplan; Fair-Value-Bewertung
Page Number:50
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht