Abstract
The cost of backdating of executive stock options is found to be relatively modest, even prior to the Sarbanes-Oxley act. We identify the backdating possibility as a version of a European lookback option. Under the Sarbanes-Oxley Act we identify this possibility as a particular American lookback option. We estimate the cost to the stock holders by Monte Carlo simulations. Given broadly reasonable assumptions, the value of backdating behavior nearly vanishes post Sarbanes-Oxley.
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