Penn State University - Smeal College of Business
PSU search
Student Exchange Smeal site map Contact us Accounting faculty directory

Steven Huddart picture
 
Should I exercise my stock options?
 
 
Research
 
Case Studies
 
Courses
 
 
Stock compensation glossary
 
Compensation links
 
Securities law links
 
Tax links
 
 
Office hours and location
 
Facts About The School
 
Home | Previous | Next | Huddart Site Map

Minimum value


The value provided by a formula for pricing a Call option. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected dividend distributions over the time to expiration. Implicitly, it assumes the expected standard deviation of the stock return over the time to expiration (also known as stock price Volatility) is zero.

In the case of stock not expected to pay dividends, the minimum value may be computed using the Black-Scholes formula and assuming a stock volatility of zero. Alternatively, the minimum value can be computed as the the current price of the stock reduced by the present value of exercise and dividends expected to be distributed before exercise.

SFAS No. 123 permits companies to compute option expense for income statement purposes based on the minimum value.


Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 863-0048
huddart@psu.edu
vCard
Home | Previous | Next | Huddart Site Map

http://personal.psu.edu/sjh11/OptionGlossary/MinimumValue.shtml
was last updated on Tue, Aug 21, 2018.
Today is Sun, Sep 15, 2019.

Unless otherwise noted, all material is:
Copyright ©1995-2018 Steven Huddart. All rights reserved.