Question

Consider a 5-year call option on a non-dividend-paying stock granted to employees. The option can be exercised at any time after the end of the first year. Unlike a regular exchange-traded call option, the employee stock option cannot be sold. What is the likely impact of this restriction on the early-exercise decision?

   Consider a 5-year call option on a non-dividend-paying stock granted to employees. The option can be exercised at any time after the end of the first year. Unlike a regular exchange-traded call option, the employee stock option cannot be sold. What is the likely impact of this restriction on the early-exercise decision?
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Options, Futures, and Other Derivatives
Options, Futures, and Other Derivatives
John C. Hull 10th Edition
Chapter 11, Problem 20 ↓

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An employee stock option is a call option granted to employees, allowing them to purchase company stock at a predetermined price (the exercise price) within a specified period. Unlike exchange-traded options, ESOs cannot be sold or transferred.  Show more…

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Consider a 5-year call option on a non-dividend-paying stock granted to employees. The option can be exercised at any time after the end of the first year. Unlike a regular exchange-traded call option, the employee stock option cannot be sold. What is the likely impact of this restriction on the early-exercise decision?
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