Exercise Behavior And Valuation of Swedish Employee Stock Options & Warrants

Sammanfattning

We examine the valuation of employee stock options (ESOs) and warrants (EWs) in Sweden,finding that both instruments suffer from severe deadweight costs and pricing inefficiencies.Analyzing 215 exercise transactions and 43 firm-disclosed incentive programs from OMXStockholm (2019–2026), we show that standard Black-Scholes models misprice both firm grantcosts and employee perceived value. Critically, risk aversion, non-hedgeability, the Swedishtax wedge and early exercise drive a median deadweight cost of 66–70 per cent: for everydollar spent by firms, employees value the grant at only 30–34 cents. As a supplementaryanalysis, weincorporatenon-normalityintothevaluationframeworkandfindthatwhileSwedishequity returns uniformly reject normality (median tail index across final sample of 3.54),fat tails increase objective option costs by just 0.4% on a synthetic option and 5–6% onfirm data, suppressed by the short exercisable lifetimes characteristic of Swedish programs.Finally, firm-reported IFRS 2 values sit between traditional Black–Scholes valuations andour model’s subjective value, suggesting that current reporting practice produces neither africtionless benchmark price nor the employee’s certainty equivalent.