Dealing with Employee Options
Review: 5 - "A masterpiece of literature" by , written on May 4, 2006
I really enjoyed this book. It captures the essential challenge people face as they try make sense of their lives and grow to adulthood.

Dealing with Employee Options

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In this webcast, I look at the process of valuing employee options and incorporating that value into the value of equity per share.

I use Cisco to illustrate.

This program is designed to value options, the exercise of which can create more shares and thus affect the stock price. This is the case with warrants and management options. It is also the case with convertible bonds. As a general rule, using an unadjusted option pricing model to value these options will overstate their value.

Before you run this program, check under preferences (under tools), and calculations, and ensure that there is a check against the iteration box. You will get a circular reasoning warning, but this program needs circular reasoning to compute the option value.

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School (www.damodaran.com)
In this webcast, I look at the process of valuing employee options and incorporating that value into the value of equity per share.

I use Cisco to illustrate.

This program is designed to value options, the exercise of which can create more shares and thus affect the stock price. This is the case with warrants and management options. It is also the case with convertible bonds. As a general rule, using an unadjusted option pricing model to value these options will overstate their value.

Before you run this program, check under preferences (under tools), and calculations, and ensure that there is a check against the iteration box. You will get a circular reasoning warning, but this program needs circular reasoning to compute the option value.

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School (www.damodaran.com)

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