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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. 

Learning Objectives

  • 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.
  • Identify potential mistakes and errors that may occur in the use of the equation.
  • Explore how Black Scholes compares to other methods used to value employee stock options. 
Last updated/reviewed: December 23, 2017

6 Reviews (24 ratings)Reviews

4
Member's Profile
The course was presented in a very great way. The introduction and review of basic finance concepts really sets up the participant to understand the equation. I also liked the shout out to Merton since he often is overlooked.
4
Anonymous Author
Great discussion of the Black Scholes model. The Excel file is very useful, however, no formulas are shown. The file is protected. It would be great if we can see the formulas.
4
Member's Profile
Good course to understand the basic concept of Black Scholes.
4
Anonymous Author
Solid introduction to an potentially complex subject
3
Member's Profile
would like more mathematical examples using BSM.
5
Member's Profile
Good course!

Prerequisites

Course Complexity: Intermediate

No Advanced Preparation is required.

Basic knowledge of math and key finance concepts are recommended for this course. 

Education Provider Information

Company:
Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
Contact:
For more information regarding this course, including complaint and cancellation policies, please contact our offices at (408) 400- 3993 or send an e-mail to .

2 QuestionsCourse Questions and Answers

User picture

Are you able to provide access, password to unprotect template worksheet?

Member's Profile

Hi - the sample excel is set up as an example for this specific purpose of the course, so to prevent inadvertent changes it the formulas are locked so it will work correctly. I don't recommend unlocking the worksheet as it may not function properly. Please contact me if you need more information or assistance.

Course Syllabus
INTRODUCTION and OVERVIEW
  1:50Introduction to Black Scholes Basics
Background, Theory, and Concepts
  12:22Background
  11:43Review Finance Theory
  9:46Black Scholes Concepts and Principles
The Equation
  9:37The Black Scholes Equation
  11:05The Black Scholes Equation (Continued)
Problem Solving
  10:49Issues, Solutions, Alternatives
  8:53Other Methods to Value Stock Options
CONCLUSION
  0:45Course Summary
SUPPORTING MATERIALS
  PDFSlides: Black Scholes Basics and Beyond
  PDFBlack Scholes Basics and Beyond Glossary/Index
  XLSXSample Black Scholes Employee Stock Option Calculator
REVIEW and TEST
  quizREVIEW QUESTIONS
 examFINAL EXAM