Valuing the Reload Features of Executive Stock Options

Steven Huddart, Ravi Jagannathan and Jane Saly

No 7020, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Under Statement of Financial Accounting Standards No. 123, the grant date value of executive stock options excludes the value of any reload feature because, at the time of writing the standard in 1995, the Financial Accounting Standards Board believed it was not feasible to value a reload feature at the grant date. We show how the Binomial Option Pricing Model can be used to determine the grant date value of such options. Ignoring the reload feature can substantially understate the value of the option: the reload feature increases the value of an otherwise similar option by 24 percent in the example we consider. In view of the potential significance of the reload feature and the versatility of the Binomial Option Pricing Model, the Financial Accounting Standards Board may wish to reconsider the accounting for options with a reload feature.

JEL-codes: C80 D84 (search for similar items in EconPapers)
Date: 1999-03
New Economics Papers: this item is included in nep-fmk and nep-pol
Note: CF AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published as Accounting Horizons, Vol. 13, no. 3 (September 1999): 219-240.

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