Valuing Employee Reload Options Under Time Vesting Requirement
Yue Kuen Kwok
Hong Kong University of Science & Technology - Department of Mathematics
National University of Singapore (NUS) - Department of Mathematics
September 12, 2004
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 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 efficient numerical algorithms that compute the market value of the employee reload options under time vesting requirement. Also, we explore the analytic properties of the price functions and optimal exercise policies of the employee reload options.
Number of Pages in PDF File: 21
Keywords: employee reload option, time vesting requirement, numerical algorithm
JEL Classification: G13working papers series
Date posted: September 15, 2004
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