Valuing employee reload options under the time vesting requirement

Min Dai, Yue Kuen Kwok

Research output: Journal article publicationReview articleAcademic researchpeer-review

6 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)61-69
Number of pages9
JournalQuantitative Finance
Volume5
Issue number1
DOIs
Publication statusPublished - Feb 2005

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance(all)

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