Black-Scholes Method

A differential equation is widely used to price unvested stock options. Arizona has rejected its use to determine a parent’s child support obligation. Arizona also uses either the Hug or Nelson formulas to value stock options for dividing up those options in a divorce; therefore, at this time, the Black-Scholes method has limited applicability to an Arizona divorce–despite its widespread use in other contexts. See in re Marriage of Robinson of Thiel, 201 Ariz. 328, 334 ¶ 14 (App. 2001) (rejecting the Black-Scholes method for determining child support because it is not reliable enough for purposes of litigation). However, if the employee spouse’s employment contract uses the Black-Scholes method to determine the value of the options, then the Court may use the method. See Engel v. Landman, 221 Ariz. 504, 514 ¶ 41 (App. 2009).