Study On The Price Of Employee Stock Options

Employee stock options (ESOs) have emerged as the most important compensation vehicle used by companies to retain and motivate their employees. The increased popularity may have been attributed to the perceived alignment of employees'interests with those of the shareholders, favorable accounting and tax treatments, and others. The ESOs pricing problem is just a subsection but a critical section in the ESOs research. It relates to the cost of implementing the ESOs plans and the ESOs plan compensation effect. The research of the ESOs pricing problem is an important loop in implementing ESOs plans. This text mainly discusses the pricing ESOs methods and the ESOs pricing formula within Chinese stock structure.First , we construct a more flexible ESOs pricing model which explicitly incorporate with the exit rate,the employee's behavior or their beliefs to their company parameters into the FF model. We also use the real option pricing method explicitly incorporate with the compensation parameter and the subjective discount rate. Its value will change with the company's prospects and subjective judgment of the employees. Due to these four parameters, our EFF model becomes more flexible than the former. It is broadly consistent with existing empirical evidence. At last, we analyze the parameter effects to ESOs price and give their possible reasons.Second, we suggest a different approach to evaluate ESOs that consists of using market data and relying on nonparametric statistical techniques. And we affirm the importance of the Black-Scholes formula at the option pricing. Then we successfully make use of three-step method to eliminate the ESOs'characteristic influence to risk neutral pricing condition.At last, we get the ESOs price formula under Chinese stock structure. We consider the effect of the feature of non-transferability, dilutive effect, the exit rate,the employee's behavior, the compensation effect and the subjective discount rate, and non-circulated stock to ESOs value. We analyze the effect of these parameters to the ESOs price including non-circulated stock, circulated stock, the whole share of stock, the transforming rate and state variable. And we try to give the reasons of those effects and its economic means.