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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.

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.

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?

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).


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.