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The Nasty Truth about CEO Pay

Harvard Business Review

Black-Scholes Valuation based on stock price at issue. Black-Scholes Valuation based on stock price at issue. And we will model both stock options (using the Black-Scholes formula to calculate the number of options that must be granted each year to amount to a value of $5 million on issue date) and restricted stock units ($5 million divided by the stock price on issue date).

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Big Data's Human Component

Harvard Business Review

Any fool, or mortgage banker, can use a spreadsheet and calculate a Black-Scholes equation. Machines don't make the essential and important connections among data and they don't create information. Humans do. Tools have the power to make work easier and solve problems.

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The Comparing Trap

Harvard Business Review

He and two other economists created the trading process called Black-Scholes that impacted the ways financial markets were informed and influenced. When I joined the Harvard Business School faculty, I received cards and letters from friends and family congratulating me on achieving one of the ultimate brass rings of academics. I felt pretty good about myself until I visited my assigned office in Morgan Hall.

Merton 15
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Stop Trying to Predict Which New Products Will Succeed

Harvard Business Review

Such predictions provide both magnitude and time horizon (or at least one of the two); finance tools like the CAPM and Black-Scholes formulas give us partially-specified predictions — value without time; Newtonian physics gives us a “law”, fully-specified predictive theory, completely deterministic and accurate for the directly observable world. When is it possible to predict a product’s success?

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If the SEC Measured CEO Pay Packages Properly, They Would Look Even More Outrageous

Harvard Business Review

In the case of stock options, the EFV formula is typically a Black-Scholes-Merton option-pricing model that, rooted in the “efficient markets hypothesis,” assumes that changes in a company’s stock-price exhibit a log-normal distribution and thus predicts that most stock-price changes will be very small.