Valuing the reload features of executive stock options

P. Jane Saly, Ravi Jagannathan, Steven J. Huddart

Research output: Contribution to journalArticle

10 Scopus citations

Abstract

For options with a reload feature, the holder is automatically entitled to new options when the initial option is exercised. Under Statement of Financial Accounting Standards No. 123, the grant date value of executive stock options excludes the value of a reload feature because the Financial Accounting Standards Board believes it is not feasible to value a reload feature at the grant date. We show how the Binomial Option Pricing Model can be used to value options and the reload feature at the grant date. Ignoring the reload can substantially understate the value of the option. Accordingly, the Financial Accounting Standards Board may wish to reconsider the accounting for reload features.

Original languageEnglish (US)
Pages (from-to)219-240
Number of pages22
JournalAccounting Horizons
Volume13
Issue number3
DOIs
StatePublished - Sep 1999

All Science Journal Classification (ASJC) codes

  • Accounting

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