... talented people to come to work for them. Frankly, it would be all but impossible to attract
those people without being able to offer stock options. Simply put, stock options are a great
incentive in attracting talented people. Offering stock options is a way of showing prospective
employees that a ...
Key Issues and Ideas - BYU Marriott School
... 13. Which security should sell at a greater price?
a. A 10-year Treasury bond with a 9% coupon rate or a 10-year T-bond with
a 10% coupon.
b. A three-month maturity call option with an exercise price of $40 or a
three-month call on the same stock with an exercise price of $35.
c. A put option of a s ...
Valuing Stock Options: The Black
... into the BSM formula (D vs. q)
Only dividends with ex-dividend dates
during life of option should be included
The “dividend” should be the expected
reduction in the stock price expected
Share Based Employee Benefits
... Equity settled stock options granted to employees pursuant to the Company’s stock option schemes are accounted for as per the
intrinsic value method prescribed by Employee Stock Option Scheme and permitted by the SEBI guidelines, 1999 and the Guidance
Note on Share Based Payment issued by the Instit ...
... Does certainty equivalent depend on mean and variance?
What does Barry Schwartz think of all this?
8. Uncertain future payments (uncertainty and time)
Expected values of cash flows
Higher discount rates as a proxy for uncertainty
(Bringing in the lawyers: “We agree that the truth is
between 3.2% and ...
... • Compute the cash flows from the option at
expiration t years from now.
• Discount the cash flow value back to time 0 by
multiplying by e-rt to calculate the current value of
• Select the current value of the option as the output
variable and perform many iterations to quantify
the expe ...
... 4. A long strangle option pays max(K1 − S, 0, S − K2 ) if it expires when
the underlying stock value is S. The parameters K1 and K2 are the
lower strike price and the upper strike price, and K1 < K2 . A stock
currently has price $100 and goes up or down by 20% in each time
period. What is the value ...
Option Price and Portfolio Simulation
... Want to guarantee that t periods from now
you will have at least I*z
◦ z is a number generally between 0 and 1that
guarantees a minimum value
◦ Want to invest in Stock with price S0 and Put for
stock with exercise price X
◦ A package of share + put costs S0 + P(S0,X)
◦ Buy a packages where
a =I/(S ...
Valuing Stock Options: The Black
... • The implied volatility of an option is the
volatility for which the Black-Scholes price
equals the market price
• The is a one-to-one correspondence
between prices and implied volatilities
• Traders and brokers often quote implied
volatilities rather than dollar prices
FINANCIAL INSTRUMENTS CHECKLIST
... voting against to veto.
- If offering price is < 90% of market price & new
shares offered > 5% of paid up capital, needs 5%
voting against to veto.
- If the company allocates shares to any one director
and/or any one employee > 5% of total issued shares,
must ask for approval on individual basis; ne ...
... • A move large enough in the direction you want
it too, the OTM option can deliver large gains
• But if the move is against you, the loss will be
less than ATM and ITM
• OTM near expiration dates tends to fare well
Fall 10 489f10t1.pdf
... 4. (20 points) An insurance company is concerned about health insurance claims. Through an
extensive audit, the company has determined that overstatements (claims for more health
insurance money than is justified by the medical procedures performed) vary randomly with
an exponential distribution X ...
... When a potential financial conflict of interest is indicated, the financial interest will need to be reviewed by the IRB.
Check one of the following. Describe the extent of the involvement in the space provided.
[ ]Financial Interest Under $10,000 in aggregate
Check all that apply:
[ ] Consulting
Professor Banko`s Presentation
... • Jay’s view: (research) assume(s) that thousands of
companies that didn’t go public would have grown
as fast as companies such as Google if they had!
This assumption, which I would tend to categorize
as completely ridiculous …
... Source: Stock Plan Dilution, 2002: Overhang from Stock Plans at S&P Super 1,500 Companies—Investor Responsibility Research Corp
Options Contract Mechanics, Canola Futures
... Here’s an example. If you own a $400-strike November call option and the futures
contract is trading at $410 per tonne, in theory you could exercise your option, buy the
futures at $400 and make a quick $10 by selling them back at the going market price.
For this reason, options are always worth as ...
Real options Primer
... risk can be avoided because the financial
markets have priced the appropriate bundle
... – an exchange of one set of assets (e.g. a fixed amount of
money, cash flow from a project) against another set of
assets (e.g. a fixed number of shares, a fixed amount of
material, another cash flow stream)
– at a specific time or at some time during a specific time
interval, to be determined by on ...
Employee stock option
An employee stock option (ESO) is commonly viewed as a complex call option on the common stock of a company, granted by the company to an employee as part of the employee's remuneration package. Regulators and economists have since specified that ""employee stock options"" is a label that refers to compensation contracts between an employer and an employee that carries some characteristics of financial options but are not in and of themselves options (that is they are ""compensation contracts"").As described in the AICPA's Financial Reporting Alert on this topic, for the employer who uses ESO contracts as compensation, the contracts amount to a ""short"" position in the employer's equity, unless the contract is tied to some other attribute of the employer's balance sheet. To the extent the employer's position can be modeled as a type of option, it is most often modeled as a ""short position in a call."" From the employee's point of view, the compensation contract provides a conditional right to buy the equity of the employer and when modeled as an option, the employee's perspective is that of a ""long position in a call option."" Employee Stock Options are non standard contracts with the employer whereby the employer has the liability of delivering a certain number of shares of the employer stock, when and if the employee stock options are exercised by the employee. Traditional employee stock options have structural problems, in that when exercised followed by an immediate sale of stock, the alignment between employee/shareholders is eliminated. Early exercises also have substantial penalties to the exercising employee. Those penalties are a) part of the ""fair value"" of the options, called ""time value"" is forfeited back to the company and b) an early tax liability occurs. These two penalties overcome the merits of ""diversifying"" in most cases.Stock option expensing was a controversy well before the most recent set of controversies in the early 2000s. The earliest attempts by accounting regulators to expense stock options in the early 1990s were unsuccessful and resulted in the promulgation of FAS123 by the Financial Accounting Standards Board which required disclosure of stock option positions but no income statement expensing, per se. The controversy continued and in 2005, at the insistence of the SEC, the FASB modified the FAS123 rule to provide a rule that the options should be expensed as of the grant date. One misunderstanding is that the expense is at the fair value of the options. This is not true. The expense is indeed based on the fair value of the options but that fair value measure does not follow the fair value rules for other items which are governed by a separate set of rules under ASC Topic 820. In addition the fair value measure must be modified for forfeiture estimates and may be modified for other factors such as liquidity before expensing can occur. Finally the expense of the resulting number is rarely made on the grant date but in some cases must be deferred and in other cases may be deferred over time as set forth in the revised accounting rules for these contracts known as FAS123(revised).