Valuing Employee Reload Options Under Time Vesting Requirement

21 Pages Posted: 15 Sep 2004

See all articles by Yue Kuen Kwok

Yue Kuen Kwok

Hong Kong University of Science & Technology - Department of Mathematics

Min Dai

National University of Singapore (NUS) - Department of Mathematics

Date Written: September 12, 2004

Abstract

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.

Keywords: employee reload option, time vesting requirement, numerical algorithm

JEL Classification: G13

Suggested Citation

Kwok, Yue Kuen and Dai, Min, Valuing Employee Reload Options Under Time Vesting Requirement (September 12, 2004). Available at SSRN: https://ssrn.com/abstract=589721 or http://dx.doi.org/10.2139/ssrn.589721

Yue Kuen Kwok (Contact Author)

Hong Kong University of Science & Technology - Department of Mathematics ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Min Dai

National University of Singapore (NUS) - Department of Mathematics ( email )

Singapore

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