An IFRS 2 and FASB 123 (R) Compatible Model for the Valuation of Employee Stock Options
Journal
Financial Markets and Portfolio Management
ISSN
1555-4961
ISSN-Digital
1555-497X
Type
journal article
Date Issued
2005-12-01
Author(s)
Abstract
We show how employee stock options can be valued under the new reporting standards IFRS 2 and FASB 123 (revised) for share-based payments. Both standards require companies to expense employee stock options at fair value. We propose a new valuation model, referred to as Enhanced American model, that complies with the new standards and produces fair values often lower than those generated by traditional models such as the Black-Scholes model or the adjusted Black-Scholes model. We also provide a sensitivity analysis of model input parameters and analyze the impact of the parameters on the fair value of the option. The valuation of employee stock options requires an accurate estimation of the exercise behavior. We show how the exercise behavior can be modeled in a binomial tree and demonstrate the relevance of the input parameters in the calibration of the model to an estimated expected life of the option.
http://www.springerlink.com/content/ynm870p38rj57226/
http://www.springerlink.com/content/ynm870p38rj57226/
Language
English
HSG Classification
not classified
Refereed
Yes
Publisher
Springer
Publisher place
New York
Volume
19
Number
4
Start page
381
End page
396
Pages
16
Subject(s)
Eprints ID
22500
File(s)![Thumbnail Image]()
open.access
Name
An_IFRS2_and_FASB123(R)_compatible_Model.pdf
Size
543.08 KB
Format
Adobe PDF
Checksum (MD5)
a68692c39bdd6a0b0c4f792e1ea1c191