Analytic pricing of employee stock options

Jakša Cvitanić; Zvi Wiener; Fernando Zapatero

doi:10.1093/rfs/hhm065

Analytic pricing of employee stock options

Jakša Cvitanić, Zvi Wiener^*, Fernando Zapatero

^*Corresponding author for this work

Business Administration

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Abstract

We introduce a model that captures the main properties that characterize employee stock options (ESO). We discuss the likelihood of early voluntary ESO exercise, and the obligation to exercise immediately if the employee leaves the firm, except if this happens before options are vested, in which case the options are forfeited. We derive an analytic formula for the price of the ESO and in a case study compare it to alternative methods.

Original language	English
Pages (from-to)	683-724
Number of pages	42
Journal	Review of Financial Studies
Volume	21
Issue number	2
DOIs	https://doi.org/10.1093/rfs/hhm065
State	Published - Apr 2008

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10.1093/rfs/hhm065

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Analytic pricing of employee stock options

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