Closing Prices Have Fat Tails
VWAP Volatility Infinite Equity is introducing innovative new thought leadership on the financial theory around determining historical volatility for purposes of ASC718. Introduced in the Research Brief, A New Way to Estimate Historical Volatility, and published collectively at www.VWAPVolatility.com. The intent of this Research Brief is to study closing prices compared against the tick-by-tick transaction…
Is VWAP Volatility a Better Method for Me?
VWAP Volatility Infinite Equity is introducing new innovative thought leadership on the development of historical volatility for purposes of ASC718. We introduced the financial theory in the Research Brief, A New Way to Estimate Volatility, and published collectively at www.VWAPVolatility.com. The intent of this article is to help the reader understand historical volatility and the…
Comparing Volatility Methods
Traditional historical vs. VWAP volatility Infinite Equity is introducing innovative new thought leadership on the financial theory around determining historical volatility for purposes of ASC718. Introduced in the Research Brief, A New Way to Estimate Historical Volatility, and published collectively at www.VWAPVolatility.com, the intent of this Research Brief is to compare actual historical volatility calculations…
Unexpected Expense
Is Your Stock-Based Compensation Program about to Cause a Second Wave of Expense? The first quarter of 2020 was one of the worst quarters for the stock market since the Great Recession, with the S&P 500 Index dropping over 20%. Many companies are preparing for reduced revenue and earnings with shelter in place orders slowing…
The New AS 1210: Using the Work of a Specialist
The valuation and accounting for employee equity under ASC 718 can be quite material and has ramifications throughout your corporate financials. Some of the exhibits that will be affected are the income statement, the disclosures in your Summary Compensation Table in the Proxy, the effect on your annual say on pay votes, and other investor…
The “Stub Period” Challenge
Relative Total Shareholder Return (RTSR) awards are the most prevalent type of performance awards in the global marketplace. The accounting fair value under ASC Topic 718 for RTSR awards is estimated using Monte Carlo simulation that reflects all known information as of the grant date, which often occurs several weeks or months into the TSR…
What Is Monte Carlo Simulation?
Performance Share plans that are contingent on Relative Total Shareholder Return (“RTSR”) continue to gain in prevalence. However, the accounting rules under ASC 718 create financial reporting needs on the date of grant, as it is considered a market condition, and will generally require a Monte Carlo simulation. (For a full primer on performance award…
The Grant Sizing Challenge
Once your organization decides that it’s going to grant performance shares contingent on Relative Total Shareholder Return (“RTSR”), one of the first and most impactful decisions is how you’re going to determine the “target” grant size. Generally, there are three (3) broad methodologies for doing so: Methodology 1: Share Price – The current share price…
Design Levers to Lower the RTSR Fair Value
Performance shares earned contingent on a performance metric of Relative Total Shareholder Return (RTSR) is the most prevalent globally as seen in the marketplace. Performance awards that are contingent on Relative TSR are deemed market conditions and will generally require a Monte Carlo simulation to determine the fair value under ASC718. Unfortunately, the fair value…
