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

To: GVTucker who wrote (64053)	5/15/2003 11:04:11 AM
From: rkral	Read Replies (1) \| Respond to of 77400

OT ... GVTucker, re "Black Scholes does not estimate future values." I usually agree 100% with your posts .. but not this time. The Black-Scholes option value model is based on calculating the option value at expiration using known stock and exercise prices, and an estimate of the future price volatility of the stock. Mathematically, a log-normal probability density function of stock prices .. is multiplied by the profit/loss graph (profile) of the option at expiration .. and the result is integrated .. giving a mathematical equation for the expected option value at expiration. That equation is then modified to take both risk-free interest rates and dividends into consideration. Of course, estimates must be made here too. In applying the modified equation to employee stock options, a reduced option life (rather than the typical 10 years) is estimated. Regards, Ron

To: GVTucker who wrote (64053)	5/15/2003 4:54:27 PM
From: RetiredNow	Read Replies (1) \| Respond to of 77400

Well, maybe the semantics you and I are using are different, but I distinctly remember reading a study on tech company (including Cisco) stock options that showed conclusively that had Cisco recorded B.S. stock options expense in the bubble years, the estimate would have been ALOT higher than if they recorded them now. So the conclusion of that study was that aberrationg in the stock market like the bubble and the ensuing crash caused B.S. expenses to be distorted. However, the other conclusion was that in 95% of the data, B.S. was remarkably accurate. I sure wish I had saved the link to that study. I'd have loved to post it, but I'll keep an eye out for it and post it if I find it again.