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Hi Jim,

I have to admit you make this fun even if I think you have gotten abit obsessive about delta's :) Unfortunately, your revised model tells me that the further into the money the option is the cost of issuing that equity converges with the current cost of oustanding equity. Which is the Sadj/Co goes to one and N(d1) goes to one leaving you with the original beta.

So if I was to hijack the model from you - I would stick with the original model which in my mind better captures the opportunity cost the firm has to pay when the stock options increase in value.

Thanks again for sharing - I do appreciate it. Tom Copeland has a corporate finance text that goes over this issue (I believe since it was only referenced by the Valuation book I have) I am tempted to grab a copy to find out what he has to say. If I find anything new to add I will be glad to share.

Back to Don Chance and Bruno Solnik for me.

Matthew
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