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An expanded model for the valuation of employee stock options

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  • Feng‐Yu Liao
  • Yuh‐Dauh Lyuu

Abstract

The unique characteristics of employee stock options make straightforward applications of traditional option pricing models questionable. This study extends the standard pricing model to account for the dilution effect, the employees' exercise pattern, and the state‐dependent employee forfeiture rate. It also performs comparative analysis of popular existing models and the proposed models. Finally, the impacts of the above‐mentioned factors on the fair value of employee stock options are investigated. The results support the claim that our models reflect the reality better than existing models. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:713–735, 2009

Suggested Citation

  • Feng‐Yu Liao & Yuh‐Dauh Lyuu, 2009. "An expanded model for the valuation of employee stock options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 29(8), pages 713-735, August.
    • Handle: RePEc:wly:jfutmk:v:29:y:2009:i:8:p:713-735
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    Cited by:

    1. Kwangil Bae & Jangkoo Kang & Hwa‐Sung Kim, 2018. "Call options with concave payoffs: An application to executive stock options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(8), pages 943-957, August.

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