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Employee Stock Options:Exercise Timing, Hedging, and Valuation

Author

Listed:
  • Tim Leung

    (University of Washington, USA)

Abstract

Employee stock options (ESOs) are an integral component of compensation in the US. In fact, almost all S&P 500 companies grant options to their top executives, and the total value accounts for almost half of the total pay for their CEOs. In view of the extensive use and significant cost of ESOs to firms, the Financial Accounting Standards Board (FASB) has mandated expensing ESOs since 2004. This gives rise to the need to create a reasonable valuation method for these options for most firms that grant ESOs to their employees. The valuation of ESOs involves a number of challenging issues, and is thus an important active research area in Accounting, Corporate Finance, and Financial Mathematics.

Suggested Citation

  • Tim Leung, 2021. "Employee Stock Options:Exercise Timing, Hedging, and Valuation," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 10437, June.
    • Handle: RePEc:wsi:wsbook:10437
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    File URL: https://www.worldscientific.com/worldscibooks/10.1142/10437
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    More about this item

    Keywords

    Employee Stock Options; Optimal Hedging; Risk Aversion; Vesting Period; Timing Strategies;
    All these keywords.

    JEL classification:

    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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