Underwater Option Exchanges: Ongoing Use of Black-Scholes Formula after Valuing Replacement Options with Lattice Model

This Issue Brief discusses the arguments for and against a company being allowed (and potentially even encouraged) to use a lattice model to value replacement options subject to an option exchange without being required to continue using that lattice model to value new at-the-money grants issued by the firm in the future. Competing perspectives related to this issue are discussed throughout the Issue Brief, followed by Equity Methods’ recommendation on the matter.

Don’t miss another topic! Get future Issue Briefs and other alerts from Equity Methods directly via email: