NDLI: On the modeling of employee voluntary early exercise for the valuation of Employee Stock Options

Content Provider	IEEE Xplore Digital Library
Author	Chendra, E. Sidarto, K.A. Puspita, D. Syamsuddin, M. Lismayanti, S.
Copyright Year	2013
Description	Author affiliation: Ind. & Financial Math. Group, Inst. of Technol. Bandung, Bandung, Indonesia (Chendra, E.; Sidarto, K.A.; Puspita, D.; Syamsuddin, M.; Lismayanti, S.)
Abstract	Employee Stock Options (ESOs) are call options granted by a company to its employees on the stock of the company. ESOs are an important part of company compensation and the valuation of these options has become a focus attention in finance and accounting. ESOs have special characteristics, such as: they are not tradable; they can be exercised only after the vesting period; if employees leave the company during the vesting period then the ESOs are forfeited. So valuing these options using Black-Scholes framework is less appropriate. This paper extends the model proposed by Brisley and Anderson to account for the restricted set of possible exercise dates (Bermudan style) and the state-dependent employee exit rate. We analyze the optimal early exercise decision by risk neutral valuation model. Then the price of ESOs is computed using Monte Carlo method. The Monte Carlo method is flexible and easy to implement and modify. We also analyze ESOs properties and sensitivity with respect to the model parameters.
Starting Page	1403
Ending Page	1407
File Size	761112
Page Count	5
File Format	PDF
ISBN	9781479924325
e-ISBN	9781467362177
DOI	10.1109/ICACCI.2013.6637384
Language	English
Publisher	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Publisher Date	2013-08-22
Publisher Place	India
Access Restriction	Subscribed
Rights Holder	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Subject Keyword	Analytical models Monte Carlo method Monte Carlo methods Computational modeling Companies Employee Stock Options Mathematical model Brisley-Anderson model Cost accounting Standards
Content Type	Text
Resource Type	Article

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4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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