Introduction to Equity Award Valuation Models

Takis Makridis

This White Paper provides an introduction to the central valuation framework of ASC 718, the various types of valuation models available, and how these models differ in theory and practice.

This White Paper also comments on the current state of affairs, in which a majority of companies use the Black-Scholes formula to value employee stock options, and discusses where best practices are heading. Whereas most companies indicated they used the Black-Scholes formula exclusively, the onset of total shareholder return (TSR) awards has forced many companies to implement new and more advanced models such as Monte Carlo simulation.

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