Stock Options
Common situations where stock options are required to be valued include the following:
- Upon grant, exchange, or termination – Article and News research
- Proxy statement disclosure – Company and Industry Research
- Financial statement purposes (SFAS 123R) and footnote disclosure – Company and Industry Research
- Executive compensation or income tax reporting (IRC Section 409A) – Industry Research
- Ownership transfer – Company, Industry, Market Research
- Breach-of-contract matters – Industry Research
Option Valuation Models
Economic Models
Econometric models, also referred to as empirical models, were developed by studying historical relationships of various economic factors thought to influence the value of options and the actual market price of options. The most common econometric models are the Shelton and Kassouf models.
Theoretical Models
Theoretical models, also referred to as statistical or probability models, are forward-looking and consider the option terms and characteristics of the underlying stock to determine what the options should sell for in the market. The most common theoretical models are the Black-Scholes, Noreen-Wolfson, and lattice models.
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