Valuing Complex Stock Options Containing Reload Features
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John W Hill
The need to value complex options containing reload features is becoming increasingly more common as such options become more proliferate. Traditionally, two types of valuation methods have been used: the intrinsic method and closed-form models, such as Black-Scholes. These methodologies undervalue options with reload features, a fact recently recognized by both accounting regulators and some courts which have sanctioned the use of binomial/lattice methodology. Such undervaluation can be costly to clients in litigation such as divorce cases. This study analyzes these alternative methodologies and reveals the extent of such undervaluation when the Black-Scholes method is used. It also provides evidence of the sensitivity of the resulting value to various assumptions required by binomial/lattice models.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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- Valuation of Small Business: An Alternative Point of View
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- Post-Employment Covenants and Economic Losses
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Articles in the same Issue
- Article
- Privatization and Financial Performance: Can Value Be Created by Privatizing State Owned Enterprises in the Middle East & North Africa (MENA) Region?
- Recoverable Damages for Wrongful Death in the States: A Decennial View
- Is The Mergerstat Control Premium Overstated?
- Quantifying Risk When Using the Income Approach
- The Value of Life: A Labor-Based Theory
- The Effect of Sales Terms on Goodwill, Risk and Return in Transfers of Closely Held Accounting Practices
- Valuation of Small Business: An Alternative Point of View
- Owner Employee Compensation is Not Free Cash Flow
- Post-Employment Covenants and Economic Losses
- Valuing Complex Stock Options Containing Reload Features
- Examination and Comparison of Hispanic and White Unemployment Rates
