As such, a modified version of the Black-Scholes option-pricing model
could be used to value the earnout.
To get the firm off the ground, two of the world's top economists were brought in as principals, Myron Scholes, who co-developed the Black-Scholes option-pricing model
, and Robert Merton, who developed a theory of continuous pricing as a means of hedging against stock losses.
Under "fair value reporting," options are valued using the Black-Scholes option-pricing model
, a binomial model, or some other acceptable model with modifications allowed for early exercise and other factors.
I am also responsible for naming the model, "the Black-Scholes Option-Pricing Model
Black-Scholes Option-Pricing Model
: Developed by Myron Scholes and Fischer Black and published in 1973 for valuing short-term publicly traded options, for which it works extremely well (and is used daily by thousands of traders in millions of transactions).
RELATED ARTICLE: THE BLACK-SCHOLES OPTION-PRICING MODEL
The Black-Scholes option-pricing model
is by far the most popular approach.
Here is a simple and cost-effective approach to using a firm's existing spreadsheet program to construct a template to value an option using the Black-Scholes Option-Pricing Model
modified for dividend payments.
However, under the ED's requirements, we calculated a $5.75 value per option using the Black-Scholes option-pricing model
. This is based on the assumption the stock price's annual standard deviation is 3a%.