hi, I applied to a remuneration consultancy company for a sort-of quant role, which seems require a decent knowledge of option pricing. Anyone can explain a bit how the option pricing be used in remuneration industry? Thanks

Many firms grant their senior execs share options. Traditionally as we know they are set such that as long as the firm doesn't actually go bankrupt, they get paid.But in several countries, like the USA they are taxed as if the firm had bought options and given them to the staff.As I recall in the US, the straight Black-Scholes model is used by the tax authorities.Of course the execs are more than happy to use the firms money to create themselves structures that make their tax position better, and to look as if they are beingpaid for increasing shareholder value, rather than merely having played golf with this right people.Thus you will see exotic structures which are made complex solely to be confusing.The trick even with simple options is to get the parameters "right". Volatility as we all know is defined as an instantaneous quantity which can be forecast over the option's life.There are quite literally dozens of ways of forecasting vol, and you need to pick the one that makes the options look least valuable.Also the period of the past you use as an input to these methods is also important, since vol is itself pretty volatile.The drift term is also open to any any number of forecasting processes, and is equally sensitive to the historical period chosen to feed into the forecast.Thus I suspect to do the job well you shold be able to enumerate different vol/drift calculations and how they may be tuned. Don't of course use my cynical position on execs choosing their own pay