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Version date: 26 February 2020 - onwards
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Application of option pricing models to employee share options (paras. BC145-BC199)

BC145 Option pricing models are widely used in, and accepted by, the financial markets. However, there are differences between employee share options and traded share options. The Board considered the valuation implications of these differences, with assistance from its Advisory Group and other experts, including experts in the FASB’s Option Valuation Group, and comments made by respondents to ED 2. Employee share options usually differ from traded options in the following ways, which are discussed further below:

(a) there is a vesting period, during which time the share options are not exercisable;

(b) the options are non‑transferable;

(c) there are conditions attached to vesting which, if not satisfied, cause the options to be forfeited; and

(d) the option term is significantly longer.

Inability to exercise during the vesting period

BC146 Typically, employee share options have a vesting period, during which the options cannot be exercised. For example, a share option might be gra

Comparing proposed amendment...