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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Tenchusatsu who wrote (179958)	12/20/2004 2:11:44 PM
From: GVTucker	Read Replies (3) \| Respond to of 186894

Tenchusatsu, RE: I'm not an accountant, but from the explanations I've seen, this method of expensing options doesn't seem all that accurate to me. It seems more like a settlement on a solution that is "50% accurate, but that's good enough, and at least it's better than 'zero'." I have yet to see anyone offer any evidence that Black-Scholes isn't highly accurate, and certainly greater than 50%. It is a red herring thrown up by expensing opponents without any logic or understanding of Black-Scholes. There's a reason why practically all options, listed and unlisted, are valued using Black-Scholes. That reason is accuracy. Accuracy is valuable, I agree, but I'd say precision is just as important, and the method of expensing options is just too exposed to the volatility of the stock market to be precise. Ah, but you've inadvertently hit upon the very reason why I think that options shouldn't be used nearly as much as they are currrently. First of all, note that the volatility of the overall stock market is not an item in Black-Scholes. The volatility of the individual stock in question is in the formula. Along those lines, though, note that in a great number of instances, a stock's performance is unrelated to the company's performance. Sometimes a company can perform wonderfully, but if the stock was already discounting even better performance, the stock can nonetheless decline. Is it sensible to take away everyone's bonus because something completely out of their control has gone in a different direction? Similarly, what if the stock market is discounting bankruptcy, but the company has managed to plod along and survive, although still perform horribly. Does it make sense to reward an inept management just because the market thought that the company was beyond hope?