Advanced Search
MyIDEAS: Login

UK Executive Stock Option Valuation: A Conditional Model

Contents:

Author Info

  • Edward Lee

    (Manchester Business School, UK)

  • Konstantinos Stathopoulos
  • Konstantinos Vonatsos

    (Manchester Business School, UK)

Registered author(s):

    Abstract

    We value UK executive stock options (ESOs) as American options that are awarded conditional on the probability of the holders achieving some performance criteria. Unlike the standard Black and Scholes (BS) model, which is universally used both in the literature and practice, this provides a more realistic representation of UK ESOs. We show that UK ESOs actually have less value and contain more incentives than they appear under the BS approach. Specifically, we observe a 17 per cent average discount in the value of the ESOs when compared to their BS value. In addition, we find significantly higher incentive levels when we measure the sensitivity of the options using the hedge ratio, i.e. the option's delta. We argue that these findings have implications for two contemporary debates in the UK, i.e. the substitution of ESOs by Long-Term Incentive Plans (LTIPs) and the discounting of ESO value from company profits. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Blackwell Publishing Ltd.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-8683.2007.00658.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Corporate Governance: An International Review.

    Volume (Year): 15 (2007)
    Issue (Month): 6 (November)
    Pages: 1469-1479

    as in new window
    Handle: RePEc:bla:corgov:v:15:y:2007:i:6:p:1469-1479

    Contact details of provider:
    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0964-8410&site=1

    Order Information:
    Web: http://www.blackwellpublishing.com/journal.asp?ref=0964-8410&site=1

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:bla:corgov:v:15:y:2007:i:6:p:1469-1479. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.