I took this directly from a 10k filing:Expected volatility based on option feature embedded in the company's convertible subordinated debentures, which is comparable to employee stock options.Agree, disagree?

QuoteOriginally posted by: FishSauceI took this directly from a 10k filing:Expected volatility based on option feature embedded in the company's convertible subordinated debentures, which is comparable to employee stock options.Agree, disagree?Confused.. What are u asking about? What is the volatility in refernce to? Stock Price? Debenture Price? Earnings?

sorry, I forgot.This is in reference to stock option expense, via. pro forma in a footnote in 10ks and 10Qs.My thinking is that the new volatiltiy measurement (Debenture) is UNDERSTATING the stock option expense had it been measure by typical volatiliy, i.e. historical volatility.Would it be safe to assume tht the volatility from debenture would be LOWER than historical stock volatilty?

BUMP

I think volatility from a convertible with similar term and moneyness to employee stock options is a better estimate than either historical volatility or implied volatility from short-term options. The trouble is measurement error. Many convertibles are not very liquid, and implied volatility is very sensitive to credit assumptions. Also there is enough variety in convertible bond pricing models to allow a company to manipulate the results.Why do you think convertible bond implied volatility is generally lower than historical volatility? Or are you basing your opinion on the fact management chose it?

Just looking at the data. The adoption of volatility assumption via convertible was half previous year's, which was based on historical data. Kinda suspicious.

I'm sure your suspicion is correct that the company made the choice to lower the stated value of the employee stock options. But it still might be a better number. Also vols of many companies were down since last year, that may be some of the difference. It's certainly a good annual meeting question.