A Critical Review of the Fair Value Settlement Procedure for Stock Options

  • Oege Pennin
  • Martijn J. van den Assem VU University Amsterdam and Tinbergen Institute
  • Remco C.J. Zwinkels VU University Amsterdam and Tinbergen Institute
Keywords: fair value, intrinsic value, stock option, implied volatility, option pricing, takeover

Abstract

We review the European practice of fair value settlement of stock options after a successful takeover bid. We argue on both fundamental and practical grounds that the inherent complexity, arbitrariness and inaccuracy of fair value calculations call for replacement by intrinsic value settlement. This alternative is simple, transparent, well-defined, and common practice at other exchanges

Downloads

Download data is not yet available.

Author Biographies

Oege Pennin

Oege Pennin is at Rabobank, Utrecht, the Netherlands.

Martijn J. van den Assem, VU University Amsterdam and Tinbergen Institute

Martijn J. van den Assem is at VU University Amsterdam and Tinbergen Institute, Amsterdam, the Netherlands.

Remco C.J. Zwinkels, VU University Amsterdam and Tinbergen Institute

Remco C.J. Zwinkels is at VU University Amsterdam and Tinbergen Institute, Amsterdam, the Netherlands.

Published
2015-11-30
How to Cite
Pennin, O., van den Assem, M. J., & Zwinkels, R. C. (2015). A Critical Review of the Fair Value Settlement Procedure for Stock Options. Applied Finance Letters, 4(1 & 2), 20-27. https://doi.org/10.24135/afl.v4i1and2.29
Section
Articles submitted to regular issue