USA
Option - American or European
Identifying Volatility
in share price
Separating Market Specific and
Non-Market Vesting Conditions
Mixing Relative & Intrinsic
Valuation Methods
Expertise in ASC 718,
IFRS 2, and Ind AS 102
Estimating Volatility & Sensitivity
Binomial Model and Black & Scholes Model
Monte Carlo Simulations

Issue of Employee Stock Option Plan (ESOP)

Lifecycle

Often entrepreneurs dilute their holdings by issuing ESOP in order to achieve 2 goals–
a) retain employees b) zero cash cost.

Called as Issue of Sweat Equity Shares, its Valuation is compulsory by registered valuer under Rule 8 of Companies (Share Capital and Debentures) Rules, 2014. Key employees are retained with ESOP (equity or cash settled) and valuation can be achieved through Binomial and Black & Scholes Modelling. Typically, a normal distribution is used to estimate pricing where key inputs include volatility, maturity, strike price, and interest rates. Typical challenges arise when such options are American (can be exercised anytime in exercise period) and dependent upon market-based vesting conditions such as the market price of equity share of Pvt. Ltd. Company.

ESOP Scheme

ESOP Types

Have more questions?

 

$/€ Option - American or European

Separating Market specific and Non-market based vesting conditions

Valuation Complexities

Identifying Volatility in Share price

Unlisted shares

Valuation Complexities

High growth potential

No revenues and operating losses

Uncertain call future potential

Primary asset = IP

Expected ESOP

Negative bottom line

Private entity (non-comparable
listed entities)

How can we help you?

Combined usage of Binomial Model and Black
& Scholes Model

Monte Carlo Simulation for Highly Complex
options

Expertise in ASC718, IFRS 2, and Ind AS 102

Mixing relative and intrinsic valuation
methods

Estimating volatility and sensitivity

How can we help you?

Combined usage of Binomial Model and Black & Scholes Model

Expertise in ASC718, IFRS 2, and Ind AS 102

Estimating volatility and sensitivity

Monte Carlo Simulation for Highly Complex options

Mixing relative and intrinsic valuation methods

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