IDEAS home Printed from
   My bibliography  Save this article

Pricing of a reload employee stock option under severance risk


  • Jun Ma


Since employee stock option grants have some features that do not fulfill the Black-Scholes assumptions, we use a severance incorporating model to capture its main properties that specify the price and reload condition. Generally, the employee is exposed to various severance risks such as termination with cause or without cause. Departure from a firm with or without cause means that the option would be forfeited or exercised immediately, respectively, which gives significant influence to the optimal decision of executing the reload. To compute the reload, we determine the boundary constraint as a free boundary condition and reveal the main features of the impact of severance risk on reload.

Suggested Citation

  • Jun Ma, 2011. "Pricing of a reload employee stock option under severance risk," Quantitative Finance, Taylor & Francis Journals, vol. 11(8), pages 1233-1244.
  • Handle: RePEc:taf:quantf:v:11:y:2011:i:8:p:1233-1244
    DOI: 10.1080/14697688.2010.490560

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Philip H. Dybvig & Mark Loewenstein, 2003. "Employee Reload Options: Pricing, Hedging, and Optimal Exercise," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 145-171.
    2. Peter Carr & Vadim Linetsky, 2000. "The Valuation of Executive Stock Options in an Intensity-Based Framework," Review of Finance, European Finance Association, vol. 4(3), pages 211-230.
    3. Johnson, Shane A. & Tian, Yisong S., 2000. "The value and incentive effects of nontraditional executive stock option plans," Journal of Financial Economics, Elsevier, vol. 57(1), pages 3-34, July.
    4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    5. Huddart, Steven & Lang, Mark, 1996. "Employee stock option exercises an empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 5-43, February.
    6. Min Dai & Yue Kuen Kwok, 2005. "Valuing employee reload options under the time vesting requirement," Quantitative Finance, Taylor & Francis Journals, vol. 5(1), pages 61-69.
    7. Huddart, Steven, 1994. "Employee stock options," Journal of Accounting and Economics, Elsevier, vol. 18(2), pages 207-231, September.
    Full references (including those not matched with items on IDEAS)


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:11:y:2011:i:8:p:1233-1244. 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: (Chris Longhurst). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.