accounting for stock options

What is a stock option plan?

it’s a executive’s incentive plan whoch consists in giving employee a number of stock options which can be exercised only after certain period have passed (vesting period), normally few years

Accounting for stock options

normally we could value it like an american call option.
Black -Scholes formula is not applicable here , because it hold only for european options (it could be applied if stock pays on dividends though).

one can use numerical methods like binary trees or approximative methods (like approximation of Barone-Adesi and Whaley , for example)

Vesting period generally lasts several years.Valuation of these options normally do not depend on this period as in the contracts there are additional clauses whoch stipulate that option could be executed before vesting period ends and there fore it would be generally hedged with american option.
vesting period plays role in accounting as the cost of option is generally divided between vesting years [from start of plan until vesting period ends]

to value these plans you can use following Accounting for stock options calculator
employee stock option plan calculator

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