The valuation of employee stock options has become a key requirement due to the rapid growth in the use of these options as a means of employee compensation. IFRS 2 Share-based Payment stipulates that these instruments must be valued and expensed on the date the awards are issued. This dissertation aims to value an employee stock option, in a case where both the equity and vesting (performance) condition are based on a reported earnings process. The equity dependency on earnings stems from the fact that we are primarily concerned with the valuation of employee stock options that are issued by a private firm. We implement a capital structure framework provided by Goldstein, Ju and Leland (2001). In this framework, equity and debt are derived from an underlying EBIT process that is governed by a geometric Brownian motion. The model also accounts for taxation and bankruptcy. The research aim is addressed by incorporating the capital structure model into our employee stock option pricing framework.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uct/oai:localhost:11427/29471 |
| Date | 11 February 2019 |
| Creators | Patel, Kavir |
| Contributors | McWalter, Thomas, Musvosv, Chiedza |
| Publisher | University of Cape Town, Faculty of Commerce, African Institute of Financial Markets and Risk Management |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Masters Thesis, Masters, MPhil |
| Format | application/pdf |
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