Abstract: Reload options, call options whose exercise entitles the holder to new options, are compound options that are commonly issued by firms to employees. Although reload options typically involve exercise at many dates, the optimal exercise policy is simple (always exercise when in the money) and surprisingly robust to assumptions about the option holder's ability to transact in the underlying stock as well as assumptions about the underlying stock price and dividend process. As a result, we obtain general reload option valuation formulas that can be evaluated numerically. Furthermore, under the Black-Scholes assumptions with or without continuous dividends, there are even simpler formulas for prices and hedge ratios. With time vesting, valuation and optimal exercise are computed in a trinomial model, and we provide useful upper and lower bounds for the continuous-time case.

---