Bridge over ocean
1 November 2009 Financial Analysts Journal Volume 65, Issue 6

Using Auctions to Price Employee Stock Options: The Case of Zions Bancorporation ESOARS

  1. Sumon C. Mazumdar
  2. Vikram Nanda
  3. Rahul Surana

The first empirical analysis of Zions Bancorporation’s 2006 and 2007 auctions of Employee Stock Option Appreciation Rights Securities (ESOARS), this study examined (1) the impact of auction rules on bidding strategies and allocations, (2) the efficiency of the auction clearing prices, and (3) the “value gap” between ESOARS auction clearing prices and various model-based estimates. It found that the design features of the auctions (e.g., ending rules) significantly affected bidding strategies but not final allocations, which remained highly concentrated. It also found that the clearing prices (1) displayed high price elasticities of demand, suggesting efficient price discovery, and (2) were low relative to some, but not all, model-based estimates. These findings suggest design improvements that might benefit auctions of other illiquid derivatives (e.g., banks’ “troubled assets”) currently being considered by the U.S. government.

Read the Complete Article in Financial Analysts Journal Financial Analysts Journal CFA Institute Member Content

We’re using cookies, but you can turn them off in Privacy Settings.  Otherwise, you are agreeing to our use of cookies.  Accepting cookies does not mean that we are collecting personal data. Learn more in our Privacy Policy.