On the Opportunity Cost of Nontradable Stock Options

Moretto, Michele; Rossini, Gianpaolo

doi:10.2139/ssrn.293694

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On the Opportunity Cost of Nontradable Stock Options

27 Pages Posted: 12 Dec 2001

See all articles by Michele Moretto

Michele Moretto

University of Padua, Dep of Economics and Management

Gianpaolo Rossini

University of Bologna - Department of Economics

Date Written: December 2001

Abstract

Firms grant to their employees non-tradable stock options as an incentive device. Is the opportunity cost of issuing these options equal to the amount the company would receive if it sold the same options to outside investors? No, it is not, since the options granted to employees are non tradable, due to the incentive scheme to which they are related, and their value, i.e. the opportunity cost, may be lower or larger than the value of the corresponding tradable option.

Keywords: Employees stock options, opportunity cost, nontradable options

JEL Classification: J33, G13

Suggested Citation: Suggested Citation

Moretto, Michele and Rossini, Gianpaolo, On the Opportunity Cost of Nontradable Stock Options (December 2001). Available at SSRN: https://ssrn.com/abstract=293694 or http://dx.doi.org/10.2139/ssrn.293694