To: Lizzie Tudor who wrote (64147 ) 5/31/2003 4:58:14 PM From: rkral Read Replies (1) | Respond to OT ... Lizzie, re "well the real issue as far as expenses on a new IPO imo isn't really the amt of the grant but the *risk premium *, which is probably an infinite number "Finally the *risk premium * as applied to unvested options, counting that as an actual expense. Sheesh, you've got to be kidding! " #reply-18860260The "options expenses" on 5-30 million options at whatever *risk premium * someone can come up with, would probably equate to close to one billion in expenses, or more.Those in the know * will ignore any kind of metric like this because the *risk premium * would likely collapse by the time most of these vest. " #reply-18860133It was only when I found out the proposal on the table was this nutty Black Scholes method, which obviously was created for short term, publicly traded options. Black Scholes falls apart on any IPO based on the *risk premium * which is almost like a derivative from my old Calculus classes- and this is so obvious (based on the fact that there are no options traded for IPOs for one thing) - you would think the options expensing crowd would find another approach immediately based on that fact alone. " #reply-18860133I don't think the options expensing crowd really thought about these IPO edge cases. There is a whole host of issues we haven't touched on yet- what about that *risk premium * which black-scholes makes Cisco pay but is non-existant for Google, it isn't fair to make mature tech companies suffer a higher *premium * for options than the oldline coca cola's of the world, but let the new IPOs ignore *risk * ... but if you assign the *risk * proportionately to every new company then these "expenses" are going to be close to a billion vs. 100mm for the new IPOs without *risk *. " #reply-18718115What I'm trying to determine is whether 70mm in options "expense" (or double that if they are going to apply some sort of *risk premium * like you are asking Cisco to do) is going to be fully disclosed in all the documentation coming from the sell side at IPO. " #reply-18716362
