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Valuation Method of Equity Incentives of Listed Companies Based on the Black-Scholes Model

Valuation Method of Equity Incentives of Listed Companies Based on the Black-Scholes Model

Zhongwen Liu, Yifei Chen
Copyright: © 2020 |Volume: 12 |Issue: 2 |Pages: 14
ISSN: 1935-5688|EISSN: 1935-5696|EISBN13: 9781799805427|DOI: 10.4018/IJISSS.2020040103
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MLA

Liu, Zhongwen, and Yifei Chen. "Valuation Method of Equity Incentives of Listed Companies Based on the Black-Scholes Model." IJISSS vol.12, no.2 2020: pp.36-49. http://doi.org/10.4018/IJISSS.2020040103

APA

Liu, Z. & Chen, Y. (2020). Valuation Method of Equity Incentives of Listed Companies Based on the Black-Scholes Model. International Journal of Information Systems in the Service Sector (IJISSS), 12(2), 36-49. http://doi.org/10.4018/IJISSS.2020040103

Chicago

Liu, Zhongwen, and Yifei Chen. "Valuation Method of Equity Incentives of Listed Companies Based on the Black-Scholes Model," International Journal of Information Systems in the Service Sector (IJISSS) 12, no.2: 36-49. http://doi.org/10.4018/IJISSS.2020040103

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Abstract

This article applies the classic Black-Scholes model (i.e. B-S model) and turnover rate adapted B-S model (revised B-S model) to equity incentive valuation of listed companies. Unlike other studies on equity incentive valuation which generally adopt historical volatility, this article applies the GARCH model to equity incentive valuation. The volatility of stock price is estimated by the GARCH model to improve the accuracy of equity incentive valuation. The turnover rate has an important impact on the equity incentive valuation of listed companies. Considering the turnover rate can improve the accuracy of the equity incentive valuation and reduce the error of equity incentive valuation. Through the case study of the equity incentive valuation of Infinova, the practicality of the equity incentive valuation method is further verified.

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