ExcelBanter - Looking for a Black-Scholes Employee Stock Option valuatiion mode.

Bailey W. wrote:

"Alan Beban" wrote:

Is the underlying stock publicly traded?

Alan Beban

No, shadow stock of a private company with annual valuations done internally
by auditors annually with trading restrictions such that exercise of vested
shares can only be done in the month following the new valuation. Then the
window closes.

An exotic employee stock option.

Bailey

The reason I asked is that I've never been convinced that the
Black-Scholes approach has anything to do with the value of options on
stock for which there is no market; it might be interesting for you to
research whether reputable economists think differently. By the time
you get finished making the silly assumptions that accountants foist on
privately held companies (such as volatility of "comparable" companies)
and the limiting assumptions of the model (e.g., the "market" is
efficient), I don't believe that the model has anything to do with your
reality.

I think that the difficulty of valuing options on non-publicly-traded
stock is so difficult (ephemeral?) that people grab onto the
Black-Scholes model because it purports to value stock options, and that
for lack of any other rational approach people seem to like to pretend
that a stock option is a stock option is a stock option. That
difficulty is recognized by tax rules that apply differently depending
on whether or not the underlying stock has "a readily ascertainable fair
market value".

Since I got myself started, I will go on to say that the efforts of the
S.E.C. and the accounting profession to assign to closely held companies
the rules that are being debated for reporting stock option information
to shareholders of publicly traded companies, including information
based on the Black-Scholes model, is utter nonsense.

But then, what do I know?

Alan Beban