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Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/29546
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| Title: | Estimation of Employee Stock Option Exercise Rates and Firm Cost |
| Authors: | Carpenter, Jennifer
Stanton, Richard
Wallace, Nancy |
| Issue Date: | 26-Jan-2010 |
| Series/Report no.: | FIN-09-038 |
| Abstract: | This paper is the first to perform a comprehensive estimation of
employee stock option exercise behavior and option cost tofirms. We
develop a GMM-based methodology, robust to heteroskedasticity and
correlation across exercises, for estimating the rate of voluntary
option exercise as a function of the stock price path and of various
firm and option holder characteristics. We use it to estimate an
exercise function for a sample of 1.4 million employee-option grants to
562,311 employees at 87 publicly-tradedfirms between 1980-2007. We also
estimate the rate of employment termination, which determines
forfeitures, cancellations, and forced exercises. We use the estimated
exercise and termination functions in a simulation based valuation model
to analyze the effect of different firm and option holder
characteristics on option value, and show that the true value of these
options can differ substantially from values calculated using the usual
modified Black-Scholes approximation. |
| URI: | http://hdl.handle.net/2451/29546 |
| Appears in Collections: | Finance Working Papers
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