Nonparametric estimation of employee stock options

We proposed a new model to price employee stock options （ESOs）. The model is based on nonparametric statistical methods with market data. It incorporates the kernel estimator and employs a three-step method to modify Black- Scholes formula. The model overcomes the limits of Black-Scholes formula in handling option prices with varied volatility. It disposes the effects of ESOs self-characteristics such as non-tradability, the longer term for expiration, the eady exercise feature, the restriction on shorting selling and the employee＇s risk aversion on risk neutral pricing condition, and can be applied to ESOs valuation with the explanatory variable in no matter the certainty case or random case.

Employee Stock Options＂ Accounting for Optimal Hedging, Suboptimal Exercises, and Contractual Restrictions

Employee stock options （ESOs） have become an integral component of compensation in the US. In view of their significant cost to firms, the Financial Accounting Standards Board （FASB） has mandated expensing ESOs since 2004. The main difficulty of ESO valuation lies in the uncertain timing of exercises, and a number of contractual restrictions of ESOs further complicate the problem. We present a valuation framework that captures the main characteristics of ESOs. Specifically, we incorporate the holder＇s risk aversion, and hedging strategies that include both dynamic trading of a correlated asset and static positions in market-traded options. Their combined effect on ESO exercises and costs are evaluated along with common features like vesting periods, job termination risk and multiple exercises. This leads to the study of a joint stochastic control and optimal stopping problem. We find that ESO values are much less than the corresponding Black-Scholes prices due to early exercises, which arise from risk aversion and job termination risk; whereas static hedges induce holders to delay exercises and increase ESO costs.

Employee Stock Ownership Plans and Stock-price Informativeness

This study examines the impact of employee stock ownership plans(ESOPs)on stock-price informativeness in Chinese stock markets.Its findings indicate that firms implementing ESOPs experienced an average 11.89 percent increase in stock-price informativeness.The plans improved stock-price informativeness through increased external attention and supervision.An event study shows that ESOPs gave rise to an announcement effect,driven by anticipated performance improvements and the novelty associated with ESOPs.A mechanism analysis demonstrates that the implementation of ESOPs attracted market attention,and the increased market supervision resulting from this mitigated the moral hazards of management associated with ESOPs.Plans with more positive signals exerted a greater influence.Notably,ESOPs that prioritized management incentives gained more recognition in the market.As the incentive effects of ESOPs were weaker than those of equity incentive plans and the ESOPs lost novelty over time,the annual announcement effect diminished gradually.These findings underscore the necessity of strengthening ESOP incentives for continued optimization of priceefficiency.