Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76928
Authors: 
Raupach, Peter
Year of Publication: 
2003
Series/Report no.: 
Working Paper Series: Finance & Accounting, Johann Wolfgang Goethe-Universität Frankfurt a. M. 123
Abstract: 
This paper determines the cost of employee stock options (ESOs) to shareholders. I present a pricing method that seeks to replicate the empirics of exercise and cancellation as good as possible. In a first step, an intensity-based pricing model of El Karoui and Martellini is adapted to the needs of ESOs. In a second step, I calibrate the model with a regression analysis of exercise rates from the empirical work of Heath, Huddart and Lang. The pricing model thus takes account for all effects captured in the regression. Separate regressions enableme to compare options for top executives with those for subordinates. I find no price differences. The model is also applied to test the precision of the fair value accounting method for ESOs, SFAS 123. Using my model as a reference, the SFAS method results in surprisingly accurate prices.
JEL: 
G13
J33
M41
M52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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