Explanation:
False. An ESO with vesting restrictions and an indexed strike is indeed a nonstandard American option, but Margrabe’s formula is for an exchange option (the right to exchange one asset for another). It is not, by itself, the correct valuation model for an American ESO with vesting restrictions.
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Q-11(d). 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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