BusinessCompany NewsShare options need flexible model

Share options need flexible model

A new method of valuing share options in company accounts is being proposed to the replace the 'Black-Scholes' approach developed in the 1970s.

Writing in the most recent edition of Accountancy Age, Alex Waite, partner at Lane, Clark & Peacock, dismissed the Black-Scholes model as a ‘knee-jerk’ reaction.

Waite said this model would not provide an accurate fair value calculation, in all but the simplest cases. Rather he called for the adoption of ‘Stochastic simulation methods’, which directly model possible payments.

But Peter Williams, a chartered accountant, disagreed, calling the Black-Scholes model, something akin to ‘the discovery of the structure of DNA.’

‘The Black Scholes model has helped us with our knowledge of financial engineering,’ Williams said, adding that it was an ‘outstanding aspect of theory’.

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