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Hi Chris/ Stephen,
I don’t understand the below.. Could you please explain me?
If the conditions are specifically related to the market price of the company’s shares then such conditions are ignored for the purposes of estimating the number of equity shares that will vest. The thinking behind this is that these conditions have already been taken into account when fair valuing the shares.
They use a posh method to calculate the FV of the option (Black Scholes valuation). This (somehow) takes account of share price volatility (something to do with Betas). So, the any adjustment has been built in to the FV of the shares.
I think you will learn about option valuation if you choose AFM.
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