Use the same software the Financial Accounting Standards Board (FASB) used to generate the examples in A87 in the 2004 Financial Accounting Standards 123 (Revised), calling for the application of binomial lattices. This ESO Valuation Toolkit software was developed by Dr. Johnathan Mun, who advised and taught the Board of Directors, research fellows and staff members at FASB in 2003 and 2004, on Black-Scholes and binomial lattice modeling with respect to valuing employee stock options. Dr. Mun is also the author of numerous books including "Valuing Employee Stock Options (Under 2004 FAS 123 Requirements)" published by Wiley Finance, 2004.

In what the Wall Street Journal calls "among the most far-reaching steps that FASB has made in its 30 year history," in December 2004, FASB released a Final Statement of Financial Accounting Standards (FAS) on Share-Based Payment amending the old FAS Statements 123 and 95 issued in October 1995.

Basically, the proposal states that all new and portions of existing employee stock option (ESO) awards that have not yet vested will have to be expensed, effective June 15, 2005. In anticipation of the Standard, many companies such as GE and Coca-Cola have already voluntarily expensed their ESOs at the time of writing, while hundreds of other firms are now scrambling to look into valuing their ESOs.

Our consulting and customized software services apply the best methodology that still conforms to the FAS 123 requirements, and by doing so, firms can potentially reduce their expenses by millions of dollars a year by avoiding the unnecessary over-valuation of the naïve Black-Scholes Model.

To learn more about our customized binomial super lattice approach, download Dr. Johnathan Mun's article on the valuation impacts of FAS 123. This article is based on his latest book, "Valuing Employee Stock Options Under the 2004 FAS 123 Requirements," (Wiley, 2004). The models and algorithms used in this article and book are based on the software.