Evaluating Executive Stock Options Using the Binomial Option Pricing Model
Posted: 20 Dec 1998
Date Written: November 1994
In this note we show how to use the binomial option pricing model to value executive stock options. Since executive stock options are tailor made and there is no standardized executive stock option, we used the stock options given to Mr. R. Kovacevich, CEO of Norwest Corporation as the example to work with. We find that the Accelerated Ownership Non-Qualified Stock Options embedded in executive stock options add substantially to their value. In the example we look into, it contributes to a quarter of the total value of the option. The manuscript is available as a Microsoft-Word document with embedded Excel 4.0 worksheets. It is meant as a teaching aid for advanced undergraduate and masters level courses in option pricing.
JEL Classification: G32
Suggested Citation: Suggested Citation