Non-marketability and the Value of Employee Stock Options

M. Abudy, Simon Benninga

Research output: Contribution to conferencePaperpeer-review


We adapt the Benninga et al. (2005) framework to value employee stock options (ESOs). The model quantifies non-diversification effects, is computationally simple, and provides an endogenous explanation of ESO early-exercise. Using a proprietary dataset of ESO exercise events we measure the non-marketability ESO discount. We find that the ESO value on the grant date is approximately 45% of a similar plain vanilla Black–Scholes value. The model is aligned with empirical findings of ESOs, gives an exercise boundary of ESOs and can serve as an approximation to the fair value estimation of share-based employee and executive compensation. Using the model we give a numerical measure of non-diversification in an imperfect market.
Original languageAmerican English
StatePublished - 2012
EventFinancial Engineering and Banking Society (FEBS) conference 2012 - London, United Kingdom
Duration: 2 Jun 20123 Jun 2012


ConferenceFinancial Engineering and Banking Society (FEBS) conference 2012
Country/TerritoryUnited Kingdom


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