Answer-first summary for fast verification
Answer: True
**True.** An indexed ESO can be viewed as an **exchange option** because it effectively exchanges an indexed strike for the asset price. The indexed strike satisfies the criterion that the strike price may change during the life of the option, and the **vesting restriction** modifies the American-style feature. The **Margrabe formula**, which is a direct variation of BSM, can be used for valuation.
Author: Manit Arora
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Q-11(d). For each of the following, is the answer true or false?
True or false: An executive stock option (ESO), with a four (4) year vesting restriction and seven (7) year term, where the strike price is indexed to the S&P 500 could be called a nonstandard American option and could be valued with Margrabe which is a variant of BSM
A
True
B
False
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