Numerical simulation of the stock option pricing

2010 ◽  
Author(s):  
Jiaying Pan ◽  
Lian Xue ◽  
Zheming Huang ◽  
Quanyu Lin
Keyword(s):  
Numerical Simulation ◽  
Option Pricing ◽  
Stock Option

Xilinx, Stock Option Pricing, and the Meaning of Arm's Length

2011 ◽  
Vol 9 (1) ◽  
pp. 50-63
Author(s):  
Brett R. Wilkinson ◽  
Tracy J. Noga
Keyword(s):  
Option Pricing ◽  
Cost Sharing ◽  
Transfer Pricing ◽  
Stock Option ◽  
Sharp Contrast ◽  
Fundamental Importance ◽  
Ninth Circuit ◽  
The Future ◽  
History Of ◽  
The U.S

ABSTRACT In this paper, we examine the controversy surrounding the Xilinx case and explore what the case means for the future of transfer pricing. Although the IRS acquiesced in the Xilinx result, it expressly disagreed with the reasoning and asserted that the issue is now moot due to the application of the 2009 regulations. In sharp contrast, multiple commentators have expressed the view that the Xilinx result might in fact render the 2009 regulations invalid. For this reason, it is apparent that significant uncertainty continues to surround the central issues in Xilinx, namely, the way that stock option costs should be treated in cost sharing arrangements. In this paper, we explore what happened in Xilinx and why it matters. We then examine the implications of these developments for the future of transfer pricing, suggesting that this is potentially a watershed moment in the history of transfer pricing and the meaning of arm's length. We conclude that the Supreme Court's decision in Mayo means that the 2009 regulations are likely to stand. However, we also suggest that the IRS may have erred in not appealing the Xilinx decision because of the fundamental importance of establishing a true understanding of arm's length. The current interpretation, as articulated by the Ninth Circuit, leaves lingering uncertainty and appears to place the U.S. at odds with the position of the Organisation for Economic Co-operation and Development (OECD).

THE ENTROPY THEORY OF STOCK OPTION PRICING

1999 ◽  
Vol 02 (03) ◽  
pp. 331-355 ◽  
Author(s):  
LES GULKO
Keyword(s):  
Option Pricing ◽  
Interest Rates ◽  
Stock Price ◽  
Price Change ◽  
Price Volatility ◽  
Stock Option ◽  
Market Uncertainty ◽  
Gamma Model ◽  
Black Scholes ◽  
Market Beliefs

An informationally efficient price keeps investors as a group in the state of maximum uncertainty about the next price change. The Entropy Pricing Theory (EPT) captures this intuition and suggests that, in informationally efficient markets, perfectly uncertain market beliefs must prevail. When the entropy functional is used to index the market uncertainty, then the entropy-maximizing market beliefs must prevail. The EPT resolves the ambiguity of asset valuation in incomplete markets, notably, the valuation of derivative securities. We use the EPT to derive a new stock option pricing model that is similar to Black–Scholes' with the lognormal distribution replaced by a gamma distribution. Unlike the Black–Scholes model, the gamma model does not restrict the dynamics of the stock price or the short-term interest rate. Option replication based on the gamma model accounts for random changes in the stock price, price volatility and interest rates.

scholarly journals Executive Stock Option Pricing in China Under Stochastic Volatility

2015 ◽  
Vol 35 (10) ◽  
pp. 953-960 ◽  
Author(s):  
Terence Tai Leung Chong ◽  
Yue Ding ◽  
Yong Li
Keyword(s):  
Option Pricing ◽  
Stochastic Volatility ◽  
Stock Option ◽  
Executive Stock Option

scholarly journals Preemption of compliance costs and the voluntary adoption of SFAS No. 123(R)

2014 ◽  
Vol 12 (1) ◽  
pp. 2-20
Author(s):  
Ahmed Ebrahim ◽  
Bruce Bradford
Keyword(s):  
Option Pricing ◽  
Stock Price ◽  
Price Volatility ◽  
Stock Option ◽  
Pricing Model ◽  
Compliance Cost ◽  
Compliance Costs ◽  
Content Type ◽  
Option Pricing Model ◽  
Voluntary Adoption

Purpose – This paper aims to study a preemption proposition for the compliance costs associated with stock option expensing under SFAS 123(R) by examining whether early adopters used their discretion over option pricing model inputs to mitigate the adoption effect. Design/methodology/approach – The paper uses a matched sample approach of firms that voluntarily adopted stock option expensing during the 2002-2004 period and similar firms that waited until the mandatory expensing. The paper empirically examines some determinants of voluntary adoption, and the changes in option pricing model inputs during the period leading to mandatory expensing. Findings – The paper reports evidence that voluntary adopters of stock option expensing during the 2002-2004 period have used the period leading to mandatory expensing to preempt its compliance cost effect. The authors exercised their discretion by decreasing estimates for stock price volatility and time-to-maturity to preempt or minimize the reduction in earnings before mandatory adoption date. Originality/value – Results of this paper are useful to accounting regulators in understanding the reaction of financial statement preparers to deliberations, effective dates and voluntary early adoption terms of the accounting standards setting process.

scholarly journals Binomial Approach for The Valuation of Employee Stock Option with some features: Vesting Period, Exit Rate, Reload, and Reset

2021 ◽  
Vol 328 ◽  
pp. 06006
Author(s):  
Rudianto Artiono ◽  
Dayat Hidayat
Keyword(s):  
Option Pricing ◽  
Waiting Time ◽  
Stock Option ◽  
Employee Behavior ◽  
Exit Rate ◽  
Employee Stock Option ◽  
The Future

An Employee stock option (ESO) is one of compensation that given by company to their employee. It gives right to the employee to buy companies stock in the future with special price that have been agreed when the options were granted. In general, the valuation of ESO pricing is different with other option pricing. ESO have some features which accommodate company importance and also consider employee behavior. This article aimed to apply the binomial approach for the valuation of ESO by considering some features such as a).Vesting period, which is waiting time to exercise the option, b). Exit rate, which is feature that consider employments shock, c). Reload, a feature that give a new option after the old one had been exercised, d). Reset, a feature that doing reset on the agreement in ESO if stock in “out of money” condition. The valuation of the ESO price have been derived from the five possibility of payoff with consideration of each features involved. This study gave the valuation of ESO which consists of two areas, namely the ESO price after vesting period and ESO price at vesting period.

Leverage Effect, Volatility Feedback, and Self-Exciting Market Disruptions

2017 ◽  
Vol 52 (5) ◽  
pp. 2119-2156 ◽  
Author(s):  
Peter Carr ◽  
Liuren Wu
Keyword(s):  
Option Pricing ◽  
Cash Flows ◽  
Stock Option ◽  
Financial Leverage ◽  
Relative Contribution ◽  
Risk Increase ◽  
Volatility Feedback ◽  
The Cost ◽  
Equity Index ◽  
Index Option

Equity index volatility variation and its interaction with the index return can come from three distinct channels. First, index volatility increases with the market’s aggregate financial leverage. Second, positive shocks to systematic risk increase the cost of capital and reduce the valuation of future cash flows, generating a negative correlation between the index return and its volatility, regardless of financial leverage. Finally, large negative market disruptions show self-exciting behaviors. This article proposes a model that incorporates all three channels and examines their relative contribution to index option pricing and stock option pricing for different types of companies.

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