Reload options, call options granting new options on exercise, are popularly used in compensation. Although the compound option feature may seem complicated, there is a distribution-free dominant policy of exercising reload options whenever they are in the money. The optimal policy implies general formulas for numerical valuation. Simpler formulas for valuation and hedging follow from Black–Scholes assumptions with or without continuous dividends. Time vesting affects the optimal policy, but numerical results indicate that it is nearly optimal to exercise in the money whenever feasible. The results suggest that reload options produce similar incentives as employee stock options and share grants.

Journal Article Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors Get access Alexander P. Ljungqvist, Alexander P. Ljungqvist New York University and CEPR Address correspondence to Alexander Ljungqvist, New York University, Stern School of Business, 44 West Fourth Street, #9-190, New York, NY 10012-1126, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar Tim Jenkinson, Tim Jenkinson Oxford University and CEPR Search for other works by this author on: Oxford Academic Google Scholar William J. Wilhelm, Jr. William J. Wilhelm, Jr. Oxford University Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 16, Issue 1, January 2003, Pages 63–99, https://doi.org/10.1093/rfs/16.1.0063 Published: 16 June 2015

We examine the costs and benefits of the global integration of initial public offering (IPO) markets associated with the diffusion of U.S. underwriting methods in the 1990s. Bookbuilding is becoming increasingly popular outside the United States and typically costs twice as much as a fixed-price offer. However, on its own, bookbuilding only leads to lower underpricing when conducted by U.S. banks and/or targeted at U.S. investors. For most issuers, the gains associated with lower underpricing outweighed the additional costs associated with hiring U.S. banks or marketing in the United States. This suggests a quality/price trade-off contrasting with the findings of Chen and Ritter, particularly since non-U.S. issuers raising US20 million-US80 million also typically pay a 7% spread when U.S. banks and investors are involved.

We examine the costs and benefits of the global integration of initial public offering (IPO) markets associated with the diffusion of U.S. underwriting methods in the 1990s. Bookbuilding is becoming increasingly popular outside the United States and typically costs twice as much as a fixed-price offer. However, on its own, bookbuilding only leads to lower underpricing when conducted by U.S. banks and/or targeted at U.S. investors. For most issuers, the gains associated with lower underpricing outweighed the additional costs associated with hiring U.S. banks or marketing in the United States. This suggests a quality/price trade-off contrasting with the findings of Chen and Ritter, particularly since non-U.S. issuers raising US$20 million–US$80 million also typically pay a 7% spread when U.S. banks and investors are involved.