re: Black Scholes Folly?
All they have to do is come up with an expensing proposal that works for the Siebel situation, and these opposing groups would be forced to support it.
Funny you should ask. You remember Siebel's offer to repurchase stock options from employees in the third quarter? The offer was to purchase 31.95 million out of the money stock options with exercise prices over $40 at $1.85 per option. This $1.85 per stock option cash value would then be credited towards a purchase of Seibel stock (with holding restrictions) at the closing price on September 30, 2002. In the 3rd quarter 10Q, the company noted that $1.85 per option buyback price was at least the fair value of the most valuable out of the money stock options included in the eligible 31.95 million stock option pool, so all the employees were getting an offer of fair value or more for their stock options included in the pool. Well, apparently some of the employees didn't think this fair value offer was high enough, because 12% of the eligible stock options were never turned in to swap for the cash/stock deal.
Now comes the kicker. What method do you think the company and employees used to determine the fair value of all those underwater stock options they were offering to buy and sell in the 3rd quarter? Yep, that's right, your favorite---Black Scholes. And some employees didn't think this Black Scholes fair value of $1.85 per option , which was set at fair value for the highest, valued stock option in the pool, was high enough! So there you have it Lizzie; we have the solution for valuing stock options in the Siebel situation---it’s called Black Scholes. Siebel management and employees have already been using it to determine fair value for the out of the money employee stock options.
Now I am still waiting patiently for you to explain to Rkal how anyone can "easily see that Black-Scholes is flawed". And judging by the actions of Siebel management and employees during the third quarter, it looks like they can use some education about the folly of the Black Scholes model as well. Apparently there are a lot of us out here that are still missing the flaws of Black Scholes that you so readily see.
Regards, Huey |
