Monte Carlo Simulation (ASC 718 Valuation)

The vesting of Relative TSR awards is dependent on future market conditions; therefore, the valuation of these awards requires sophisticated modeling techniques. Radford's Monte Carlo Simulation valuation models will quickly and accurately value your Relative TSR grants, whether you’re using a Market Stock Unit, an Index Outperformance program, or Percentile Rank plan.

Key Services

  • Monte Carlo Simulation Valuation Models: The well-known Black Scholes formula and binomial lattice model are sufficient to value "plain vanilla" stock options; however, these familiar valuation tools are not sophisticated enough to handle awards with market conditions. Radford's Monte Carlo Simulation valuation models utilize the same underlying methodology as the Black Scholes and lattice models, but are complex enough to model future prices of numerous entities simultaneously.
  • Market-Based Performance Award Designs: Monte Carlo Simulation models can be used to value a variety of market-based performance award designs to help companies fully understand the unique costs and benefits of specific program design options, including:
    • Market Stock Units
    • Index Outperformance Plans
    • Stock Price Hurdle RSUs/Options
    • Percentile Rank Plans
  • Actuarial Expertise: Whether potential payouts are dependent on the TSR of just one company – yours – or performance is measured relative to that of 500 other companies, you can rest assured knowing Radford has actuarial experts who can document every step of the valuation process. We emphasize transparency within Radford’s valuation services group, and audit teams across the country are well-acquainted with our certified valuation reports.

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