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To: GVTucker who wrote (178227)	5/31/2004 11:16:18 AM
From: Lizzie Tudor	Read Replies (2) \| Respond to of 186894

Black Sholes is inteded to value the option when it is granted. That is the most relevant thing to accounting because we want to know how much the employee is being compensated Which brings us back to that prediction. If BS says he is being compensated at X, and then the actual compensation turns out to be 1/3 or 1/10 X when the actuals come in, then that means he WASN'T actually compensated in the same manner BS said he was a year prior. This is just common sense and I'm sure thats why congress is stalling here.

To: GVTucker who wrote (178227)	5/31/2004 12:13:47 PM
From: Elmer Phud	Read Replies (1) \| Respond to of 186894

GVTucker - Black Scholes is not intended to be a predictive model. It doesn't tell you where an option will be when the employee exercises the option. But it doesn't do a very good job. If BS was anything but a rough estimate then the options market would be a zero sum game. People count on BS to be wrong or they wouldn't trade options. Nothing will tell you what will happen. Grant somebody stock, it is expensed at the value of the stock AT THAT TIME. I think you mean options here because the stock is priced at FMV and that would be zero value, but the point is that the method of valuing those options is flawed. We can not predict their future value, which is the basis for establishing their current value, so why use a flawed model? Looks to me like the answer is that it's the only thing we have. A question for you, do you believe that value can be created from out of nothing without causing a loss? Must value always be denominated in money?