Analytic Pricing of Employee Stock Options | Zendy

Jakša Cvitanić | Zendy; Fernando Zapatero | Zendy; Zvi Wiener | Zendy

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Analytic Pricing of Employee Stock Options

Author(s) -

Jakša Cvitanić,

Fernando Zapatero,

Zvi Wiener

Publication year - 2006

Publication title -

ssrn electronic journal

Language(s) - English

Resource type - Journals

ISSN - 1556-5068

DOI - 10.2139/ssrn.612881

Subject(s) - stock options , obligation , stock price , stock (firearms) , turnover , business , actuarial science , econometrics , economics , microeconomics , financial economics , finance , engineering , political science , management , mechanical engineering , paleontology , series (stratigraphy) , law , biology

We introduce a model that captures the main properties that characterize employee stock options (ESO). We discuss the likelihood of early voluntary ESO 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 in a case study compare it to alternative methods. The Author 2007. Published by Oxford University Press on behalf of the Society for Financial Studies. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

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