At the annual meeting of the American Mathematical Society, Leung demonstrated that, in one scenario, stock options were worth about half of what they would be valued if one were to calculate their worth using a conventional method.
Nearly half of compensation for chief executives comes in the form of stock options. Out of concern that such options might be overly burdensome on shareholders, the U.S. Financial Accounting Standards Board since 2004 has required firms to estimate and report their cost.
One model commonly used by firms to calculate the cost of options is known as the Black-Scholes model. But this model and others are not nearly as nuanced as they should be, particularly in accounting for the psychology driving employees' behavior, according to Leung, a graduate student who collaborated with Associate Professor Ronnie Sircar.
Leung and Sircar found that other models don't take into account a number of important factors, including the following:
• employees have to weigh the risk that their stock option might lose value; since most people are risk-averse, they tend to exercise their options very early, preferring to take a tiny gain rather risk losing any profit – even though it is more likely that their options will increase greatly in value down the road;
• employees who are hoping to leave or fear that they might be fired tend to exercise their options earlier than they would if they felt secure in their employment;
• employees have to forfeit their options if they leave or are fired before their options have vested.
"Taking into account these factors has a significant bearing on how employee stock options are valued," said Leung.
Leung and Sircar submitted a paper on this research to the journal Social Science Research Network, where an abstract is published online.
Europe's microtechnology industry is attuned to growth
10.03.2017 | IVAM Fachverband für Mikrotechnik
Preferential trade agreements enhance global trade at the expense of its resilience
17.02.2017 | International Institute for Applied Systems Analysis (IIASA)
The Institute of Semiconductor Technology and the Institute of Physical and Theoretical Chemistry, both members of the Laboratory for Emerging Nanometrology (LENA), at Technische Universität Braunschweig are partners in a new European research project entitled ChipScope, which aims to develop a completely new and extremely small optical microscope capable of observing the interior of living cells in real time. A consortium of 7 partners from 5 countries will tackle this issue with very ambitious objectives during a four-year research program.
To demonstrate the usefulness of this new scientific tool, at the end of the project the developed chip-sized microscope will be used to observe in real-time...
Astronomers from Bonn and Tautenburg in Thuringia (Germany) used the 100-m radio telescope at Effelsberg to observe several galaxy clusters. At the edges of these large accumulations of dark matter, stellar systems (galaxies), hot gas, and charged particles, they found magnetic fields that are exceptionally ordered over distances of many million light years. This makes them the most extended magnetic fields in the universe known so far.
The results will be published on March 22 in the journal „Astronomy & Astrophysics“.
Galaxy clusters are the largest gravitationally bound structures in the universe. With a typical extent of about 10 million light years, i.e. 100 times the...
Researchers at the Goethe University Frankfurt, together with partners from the University of Tübingen in Germany and Queen Mary University as well as Francis Crick Institute from London (UK) have developed a novel technology to decipher the secret ubiquitin code.
Ubiquitin is a small protein that can be linked to other cellular proteins, thereby controlling and modulating their functions. The attachment occurs in many...
In the eternal search for next generation high-efficiency solar cells and LEDs, scientists at Los Alamos National Laboratory and their partners are creating...
Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are less stable. Now researchers at the Technical University of Munich (TUM) have, for the first time ever, produced a composite material combining silicon nanosheets and a polymer that is both UV-resistant and easy to process. This brings the scientists a significant step closer to industrial applications like flexible displays and photosensors.
Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are...
20.03.2017 | Event News
14.03.2017 | Event News
07.03.2017 | Event News
28.03.2017 | Life Sciences
28.03.2017 | Information Technology
28.03.2017 | Physics and Astronomy