Managing Stock Option Expense: The Manipulation of Option-Pricing Model Assumptions

2003 ◽  
Author(s):  
Derek Johnston
Keyword(s):  
Option Pricing ◽  
Stock Option ◽  
Pricing Model ◽  
Option Pricing Model

scholarly journals Preemption of compliance costs and the voluntary adoption of SFAS No. 123(R)

2014 ◽  
Vol 12 (1) ◽  
pp. 2-20
Author(s):  
Ahmed Ebrahim ◽  
Bruce Bradford
Keyword(s):  
Option Pricing ◽  
Stock Price ◽  
Price Volatility ◽  
Stock Option ◽  
Pricing Model ◽  
Compliance Cost ◽  
Compliance Costs ◽  
Content Type ◽  
Option Pricing Model ◽  
Voluntary Adoption

Purpose – This paper aims to study a preemption proposition for the compliance costs associated with stock option expensing under SFAS 123(R) by examining whether early adopters used their discretion over option pricing model inputs to mitigate the adoption effect. Design/methodology/approach – The paper uses a matched sample approach of firms that voluntarily adopted stock option expensing during the 2002-2004 period and similar firms that waited until the mandatory expensing. The paper empirically examines some determinants of voluntary adoption, and the changes in option pricing model inputs during the period leading to mandatory expensing. Findings – The paper reports evidence that voluntary adopters of stock option expensing during the 2002-2004 period have used the period leading to mandatory expensing to preempt its compliance cost effect. The authors exercised their discretion by decreasing estimates for stock price volatility and time-to-maturity to preempt or minimize the reduction in earnings before mandatory adoption date. Originality/value – Results of this paper are useful to accounting regulators in understanding the reaction of financial statement preparers to deliberations, effective dates and voluntary early adoption terms of the accounting standards setting process.

OPTION PRICING AND EXECUTIVE STOCK OPTION INCENTIVES: AN EMPIRICAL INVESTIGATION UNDER GENERAL ERROR DISTRIBUTION STOCHASTIC VOLATILITY MODEL

2011 ◽  
Vol 28 (01) ◽  
pp. 81-93 ◽  
Author(s):  
MIN PAN ◽  
SHENGQIAO TANG
Keyword(s):  
Option Pricing ◽  
Stochastic Volatility ◽  
Stock Option ◽  
Error Distribution ◽  
Stochastic Volatility Model ◽  
Pricing Model ◽  
Executive Stock Option ◽  
Volatility Model ◽  
Option Pricing Model ◽  
General Error

This article investigates the valuation of executive stock options when the stock return volatility is governed by the general error distribution stochastic volatility model, involving both the features of the stock return volatility and the abnormal fluctuations of the stock price at the expiration date. We estimate the parameters in the general error distribution stochastic volatility model using the Markov Chain Monte Carlo method with Shanghai & Shenzhen 300 Index in China as a sample, and compare the executive stock option values calculated by Black-Scholes option pricing model and the option pricing model under general error distribution stochastic volatility model. The results show that the general error distribution stochastic volatility model has greater veracity in describing the volatility of stock market returns, and there is divergence between the two values estimated by Black-Scholes option pricing model and the option pricing model under general error distribution stochastic volatility model. The divergence varies with the discrepancy between the price of underlying stock at the granting date and the strike price of the option.

An analytical approximation for the GARCH option pricing model

1999 ◽  
Vol 2 (4) ◽  
pp. 75-116 ◽  
Author(s):  
Jin-Chuan Duan ◽  
Geneviève Gauthier ◽  
Jean-Guy Simonato
Keyword(s):  
Option Pricing ◽  
Analytical Approximation ◽  
Pricing Model ◽  
Option Pricing Model

Option Pricing Model Estimates: Some Empirical Results

1982 ◽  
Vol 11 (1) ◽  
pp. 58 ◽  
Author(s):  
N. Bulent Gultekin ◽  
Richard J. Rogalski ◽  
Seha M. Tinic
Keyword(s):  
Option Pricing ◽  
Pricing Model ◽  
Empirical Results ◽  
Option Pricing Model
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