TY - JOUR
T1 - Valuing employee reload options under the time vesting requirement
AU - Dai, Min
AU - Kwok, Yue Kuen
N1 - Funding Information:
Min Dai would like to acknowledge the receipt of research grant CNSF (No. 10301002) for the completion of this work.
PY - 2005/2
Y1 - 2005/2
N2 - Upon the exercise of an employee stock option, the embedded reload provision entitles the holder to receive additional units of new options from the employer. The number of units of new options received is equal to the number of shares tendered as payment of strike and the new strike is set at the prevailing stock price. The reload provision may be subject to a time vesting requirement, that is, after each exercise, the employee is prohibited from exercising the reload until the end of a vesting period. In this paper, we construct an efficient numerical algorithm that computes the market value of the employee reload options under a time vesting requirement. Also, we explore the analytic properties of the price functions and optimal exercise policies of the employee reload options.
AB - Upon the exercise of an employee stock option, the embedded reload provision entitles the holder to receive additional units of new options from the employer. The number of units of new options received is equal to the number of shares tendered as payment of strike and the new strike is set at the prevailing stock price. The reload provision may be subject to a time vesting requirement, that is, after each exercise, the employee is prohibited from exercising the reload until the end of a vesting period. In this paper, we construct an efficient numerical algorithm that computes the market value of the employee reload options under a time vesting requirement. Also, we explore the analytic properties of the price functions and optimal exercise policies of the employee reload options.
UR - http://www.scopus.com/inward/record.url?scp=22544477099&partnerID=8YFLogxK
U2 - 10.1080/14697680400014336
DO - 10.1080/14697680400014336
M3 - Review article
AN - SCOPUS:22544477099
SN - 1469-7688
VL - 5
SP - 61
EP - 69
JO - Quantitative Finance
JF - Quantitative Finance
IS - 1
ER -