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Share option valuation is a requirement for all companies who undertake a share-based payment transaction under IFRS 2 Share-based Payment, when the fair value of the goods and services purchased cannot be measured reliably.

Share option valuation models take as inputs the exercise price of the share option, the life of the share option, the share price and the volatility of its returns, dividends paid on the share and a risk-free interest rate. Share option valuation also considers other factors that knowledgeable, willing market participants would consider in setting the price. For financial reporting, there are three main share option valuation models:

• The Black Scholes Merton share option valuation model is a common way of valuing share options with simple terms.
• Lattice share option valuation models such as Binomial or Trinomial share option valuation models capture features that are unique to options granted to employees.  
• The third approach to share option valuation is a Monte Carlo share option valuation model, which is used when terms are complex.

Consistent with IFRS 2 Share Based Payment, lattice share option valuation models can reduce a client’s expense for employee share options. The share option valuation model does this by considering the likelihood the employee will not exercise their options optimally, and the possibility that the share will be forfeited should the employee leave the company prior to the exercise.

Intangible Business specialises in valuing intangible assets and contracts such as share options. We perform share option valuations for both listed and private companies. Our turnaround time is quick when valuing share options, and our share option valuation reports set the industry standard. If you have a share option valuation requirement, we will happily review documents without charge. We can then estimate the fees for the share option valuation.

If you have any questions, or would like us to value share options for you, please call us on + 44 (0)20 7089 9236 or send us an email.