Volatility and Fair Value Estimates for Stock Options in a Changed Market

Takis Makridis

This paper, published as an Issue Brief by the National Center for Employee Ownership (NCEO), covers the issues companies should consider when analyzing their volatility estimation methodology. Brief introductions are provided on the topics of volatility estimation in general and the challenges associated with estimating long-term volatilities (as required for valuing employee options under ASC 718. The crux of this paper focuses on standard estimation methodologies currently in use and alternative best practices that have emerged.

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