Valuation models
Shout options
A European call or put whose holder may once lock in the intrinsic value while keeping the upside, valued on a Cox-Ross-Rubinstein tree, with the European price and the shout premium.
Inputs
Results
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Methodology
Conventions
- Cox-Ross-Rubinstein tree. Shout: the holder may lock in the intrinsic value once, and keeps the upside.
- Employee stock options (Hull-White 2004): forfeited on leaving before vesting, exercised on leaving after.
- Early exercise once the share reaches the exercise multiple × strike; dilution N / (N + M).
References
- Hull and White, How to Value Employee Stock Options (2004)
- Thomas, Something to Shout About (1993)
- ASC 718 and IFRS 2
Formulas
- Shout value
- V_{shout} = e^{−rτ}(S − K) + BS(S, S, τ)
- ESO node
- V = (1 − e^{−λΔt}) max(S − K, 0) + e^{−λΔt} e^{−rΔt} E[V']