Black Scholes Basics and Beyond

Black Scholes Basics and Beyond

The Black Scholes equation is one of the most widely recognized methods used to value employee stock options in publicly traded and privately owned companies.  It is frequently the basis for determining fair value in financial reporting for equity compensation (share based payments) under ASC 718 (f/k/a 123R) and the recognition of the corresponding income statement expense and balance sheet liability.

This course teaches you how to use Black Scholes to value employee stock options in any company.  You will gain a basic knowledge of stock options and how Black Scholes works. You will learn how to correctly determine the key inputs required in the equation based on professionally recognized methods and best practices. 

The focus of this course is on how to use the equation, not the complex Nobel prize-winning mathematics behind it. With the information provided in this course, you will be able to successfully run Black Scholes on various software platforms, Microsoft Excel™ spreadsheets, or other specialized calculators. As a bonus, a Microsoft Excel™ based worksheet template for the Black Scholes equation will be included for course participants.

We begin with a summary of the basic concepts and economic theory relating to employee stock options. We provide you with a simplified explanation of how the math in the Black Scholes equation actually works. We then show you how to determine basic inputs to the equation: current price, exercise (strike price), risk free rate, and dividends. We then explain how to determine some of the key assumptions used in the equation relating to the expected term and volatility. This includes a discussion of how traditional inputs to Black Scholes must be modified for use with employee stock options. We then review how changes in key variables affect the value determined using Black Scholes. We describe common errors in the use of the equation and provide suggestions to help your audit, review, or documentation process run smoothly. The course wraps up with a short comparison of Black Scholes to other valuation methods for employee stock options.

This course is for financial professionals who may be new to or want to better understand the Black Scholes equation and its use to value stock options issued as equity compensation. The information in this course can help individuals who assemble data/inputs, run calculations, perform reviews, handle communications, or present results based on the Black Scholes equation.

This course teaches you how to use Black Scholes to value employee stock options in any company.

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What you will learn

• Explore the background and uses of Black Scholes.
• Discover a practical understanding of the concept and theory behind the equation.
• Discover best practices and professionally recognized methods to determine all variables used in the equation.

Rating: 3

Level: Intermediate Level

Duration: 1.5 hours

Instructor: Illumeo Learning