For options with a reload feature, the holder is automatically entitled to new options when the initial option is exercised. Under Statement of Financial Accounting Standards No. 123, the grant date value of executive stock options excludes the value of a reload feature because the Financial Accounting Standards Board believes it is not feasible to value a reload feature at the grant date. We show how the Binomial Option Pricing Model can be used to value options and the reload feature at the grant date. Ignoring the reload can substantially understate the value of the option. Accordingly, the Financial Accounting Standards Board may wish to reconsider the accounting for reload features.
Research Article| September 01 1999
Valuing the Reload Features of Executive Stock Options
P. Jane Saly, Assistant Professor;
Ravi Jagannathan, Professor;
Accounting Horizons (1999) 13 (3): 219–240.
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P. Jane Saly, Ravi Jagannathan, Steven J. Huddart; Valuing the Reload Features of Executive Stock Options. Accounting Horizons 1 September 1999; 13 (3): 219–240. doi: https://doi.org/10.2308/acch.19126.96.36.199
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