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Valuing the Reload Features of Executive Stock Options, Accounting Horizons

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.

Type

Article

Author(s)

Steven Huddart, Ravi Jagannathan, Jane Saly

Date Published

1999

Citations

Huddart, Steven, Ravi Jagannathan, and Jane Saly. 1999. Valuing the Reload Features of Executive Stock Options. Accounting Horizons. 13(3): 219-240.

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