BP 2007 Annual Report Download - page 202

200
11 Share-based payments continued
Fair values and associated details for options and shares granted
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Options granted in 2007 3 year 5 year
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Option pricing model used Binomial Binomial
Weighted average fair value $3.57 $3.79
Weighted average share price $12.10 $12.10
Weighted average exercise price $9.13 $9.13
Expected volatility 21% 21%
Option life 3.5 years 5.5 years
Expected dividends 3.48% 3.48%
Risk free interest rate 5.75% 5.75%
Expected exercise behaviour 100% year 4 100% year 6
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Options granted in 2006 BPSOP 3 year 5 year
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Option pricing model used Binomial Binomial Binomial
Weighted average fair value $2.46 $2.88 $3.08
Weighted average share price $11.07 $11.08 $11.08
Weighted average exercise price $11.17 $9.10 $9.10
Expected volatility 22% 24% 24%
Option life 10 years 3.5 years 5.5 years
Expected dividends 3.23% 3.40% 3.40%
Risk free interest rate 4.50% 5.00% 4.75%
Expected exercise behaviour 5% years 4-9, 100% year 4 100% year 6
70% year 10
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Options granted in 2005 BPSOP 3 year 5 year
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Option pricing model used Binomial Binomial Binomial
Weighted average fair value $2.34 $2.76 $2.94
Weighted average share price $10.85 $10.49 $10.49
Weighted average exercise price $10.63 $7.96 $7.96
Expected volatility 18% 18% 18%
Option life 10 years 3.5 years 5.5 years
Expected dividends 2.72% 3.00% 3.00%
Risk free interest rate 4.25% 4.00% 4.25%
Expected exercise behaviour 5% years 4-9, 100% year 4 100% year 6
70% year 10
The group uses an appropriate valuation model of expected volatility of US ADSs for the quarter within which the grant date of the relevant plan falls.
Management is responsible for all inputs and assumptions in relation to that model, including the determination of expected volatility.
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MTPP- MTPP- EDIP- EDIP-
Shares granted in 2007 TSR FCF TSR LTL RSP DAB PSP
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Number of equity instruments
granted (million) 9.4 8.5 4.5 0.5 7.7 4.4 14.8
Weighted average fair value $4.73 $10.02 $2.81 $9.92 $11.93 $10.02 $12.37
Fair value measurement basis Monte Carlo Market value Monte Carlo Market value Market value Market value Monte Carlo
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MTPP- MTPP- EDIP- EDIP-
Shares granted in 2006 TSR FCF TSR LTL RSP DAB
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Number of equity instruments granted (million) 8.7 7.8 3.3 0.5 0.5 3.5
Weighted average fair value $7.28 $11.23 $4.87 $11.23 $11.07 $11.06
Fair value measurement basis Monte Carlo Market value Monte Carlo Market value Market value Market value
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MTPP- MTPP- EDIP- EDIP-
Shares granted in 2005 TSR FCF TSR LTL RSP
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Number of equity instruments granted (million) 9.3 8.4 3.7 0.5 0.3
Weighted average fair value $5.72 $11.04 $3.87 $10.13 $11.04
Fair value measurement basis Monte Carlo Market value Monte Carlo Market value Market value
The group used a Monte Carlo simulation to fair value the TSR element of the 2007, 2006 and 2005 PSP, MTPP and EDIP plans. In accordance with
the rules of the plans the model simulates BP’s TSR and compares it against our principal strategic competitors over the three-year period of the
plans. The model takes into account the historic dividends, share price volatilities and covariances of BP and each comparator company to produce a
predicted distribution of relative share performance. This is applied to the reward criteria to give an expected value of the TSR element.