Stock Option Accounting?

[francis cornut]

Hi everybody,
I just would like to add a few comments regarding this earlier discussion.
Options, including stock options, are indeed a conditional instrument, however they can be accounted for.
In fact, according to new IASB Standards corporates will have to account for them at fair value from January 2005.
It makes sense that somebody holding stock options would like to know about their value, unfortunately there is no official price available on the market,
and the fair value even if as noted can be obtained from models, the difficulty is to feed the models with the right parameters.
In pure gnucash terms, I think (but I haven't checked) you could use the asset/stock class, derive it and add:
- conditional instrument (boolean)
- underlying instrument (a stock)
additional info but not necessary for accounting purpose:
- call/put
- european/american (condition exercise)
- strike price
- maturity
You also need to add a function that would allow to abandon the option if out of the money (but this is just booking a transaction at 0)
or exercise the option which would impact a cash account (credit or debit strike price amount) and credit or debit your stock portfolio.
In terms of remarking the position, if the option is traded on a listed market, you usually can get settlement prices published by the exchange.
If it is not, then you have to calculate your own estimate of fair value (see my website www.derivexperts.com/bs_model.html for the Black and Scholes code).
Don't forget that options where designed so that you can as well as buy it, sell it which means you can easily be short (negative position).
I hope this helps
Fr6