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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (64040)	5/15/2003 9:39:15 AM
From: RetiredNow	Read Replies (3) \| Respond to of 77400

Not true. Black Scholes overestimates in a market crash. During a market bubble it underestimates. And then during the "normal" times when the market is not experiencing 2+ standard deviation events, Black Scholes is darned accurate. Also, you could work something out like this. Give the employees the cash, but say they aren't vested in it for 5 years. Meaning, they have a guaranteed payout, but they only get it as they vest in it. That's as golden a handcuff as options are, or more so, since it's tangible.

To: Lizzie Tudor who wrote (64040)	5/15/2003 10:51:46 AM
From: Stock Farmer	Read Replies (2) \| Respond to of 77400

because black sholes overestimates, that is the entire issue with Black Scholes. That's crazy. It's like the police issuing a speeding ticket to each parked car because the driver could press the pedal to the floor and break the speed limit. Black-Scholes doesn't intrinsicly overstate or understate the cost of stock options at all. It is a mathematical formula that depends on input factors such as the expected passage of time, the expected risk free rate of return and the expected volatility over that time. If the person using the model over estimates volatility or holding period or under-estimates risk free rate of return, then yes, the model will crank out an estimate to the high side. But if the person using the model under-estimates the volatility or holding period or over-estimates risk free rate of return, then the model will crank out an estimate to the low side. Management could just as easily low-ball the cost as high-ball it. And in fact, evidence suggests that they are using conservative numbers. John