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EXECUTIVE STOCK OPTIONS WITH A REBATE: VALUATION FORMULA
Download This ArticleP.W.A. Dayananda
Abstract
We examine the valuation of executive stock option award where there is a rebate at exercise. The rebate depends on the performance of the stock of the corporation over time the period concerned; in particular we consider the situation where the executive can purchase the stock at exercise time at discount proportional to the minimum value of the stock price over the exercise period. Valuation formulae are provided both when assessment is done in discrete time as well as in continuous time. Some numerical illustrations are also presented.
Keywords: Executive Stock Option, Rebate, Geometric Brownian Motion, Esscher Transform, Valuation Formulae, Numerical Illustrations
How to cite this paper: Dayananda, P.W.A. (2006). Executive stock options with a rebate: Valuation formula. Corporate Ownership & Control, 3(4), 76-79. https://doi.org/10.22495/cocv3i4p5
