A GUIDE TO VALUING EMPLOYEE STOCK OPTIONS WITH A RELOAD FEATURE

Thomas Hemmer, Steve Matsunaga and Terry Shevlin

Journal of Applied Corporate Finance, 1999, vol. 12, issue 2, 118-128

Abstract: At first glance, executive stock options with reload provisions appear to be more complicated than conventional options, and thus the valuation of such options would appear to be more difficult. But, as the authors demonstrate in this article, such reload options provide the employee with a dominant exercise strategy—namely, to exercise the option whenever it is “in‐the‐money.” And the fact that reload options will always be exercised simplifies their valuation by eliminating a major problem—that associated with employee's risk references and uncertain early exercise—in valuing conventional options.

Date: 1999
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