As of February 28, 2006, 958 publicly held companies accelerated the vesting of some or all of their employee stock options in advance of adopting SFAS 123 (R). We examine both the market reaction to these accelerations, as well as the determinants of the decision. Investors, in general, react...

We present an algorithm that merges a certainty-equivalence framework with the least-squares Monte Carlo algorithm to obtain the executive stock option (ESO) value for a risk-averse and undiversified agent. We account for the difference between executive's value and firm cost of the ESO. We show...

Regulations impose idiosyncratic capital and funding costs for holding derivatives. Capital requirements are costly because derivatives desks are risky businesses; funding is costly in part because regulations increase the minimum funding tenor. Idiosyncratic costs mean no single measure makes...

Implicit in industry standard option pricing models is the expectation that roughly 25% of stocks with 60% consistent volatility will septuple within 10 years, an extraordinary rate of appreciation. The exceptionally high equilibrium anticipated returns for an improbably large percentage of high...

This paper investigates whether fundamental accounting information is appropriately priced in the options market. We find that fundamental accounting signals exhibit incremental predictive power with respect to future option returns above and beyond what is captured by implied and historical...

We investigate the impact of independent valuation specialists on the downward bias of pre-initial public offering employee stock option valuations. Undervalued stock price estimates underlying firms' option grants produce option valuations that overstate earnings and provide employees with deep...

Employee stock option schemes have become increasingly prevalent over the past decade or so. This situation may, or may not, change due to recent accounting regulation that demands that stock options be expensed - quite simply because expensing reduces earnings. This must impact on the incentive...

We develop a new approach to approximating asset prices in the context of continuous-time models. For any pricing model that lacks a closed-form solution, we provide a closed-form approximate solution, which relies on the expansion of the intractable model around an “auxiliary” one. We...