Employee Stock Options:Exercise Timing, Hedging, and Valuation

Tim Leung

in World Scientific Books from World Scientific Publishing Co. Pte. Ltd.

Abstract: Employee stock options (ESOs) are an integral component of compensation in the US. In fact, almost all S&P 500 companies grant options to their top executives, and the total value accounts for almost half of the total pay for their CEOs. In view of the extensive use and significant cost of ESOs to firms, the Financial Accounting Standards Board (FASB) has mandated expensing ESOs since 2004. This gives rise to the need to create a reasonable valuation method for these options for most firms that grant ESOs to their employees. The valuation of ESOs involves a number of challenging issues, and is thus an important active research area in Accounting, Corporate Finance, and Financial Mathematics.

Keywords: Employee Stock Options; Optimal Hedging; Risk Aversion; Vesting Period; Timing Strategies (search for similar items in EconPapers)
JEL-codes: G39 (search for similar items in EconPapers)
Date: 2021
ISBN: 9789813209633
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