... calcu-late the Black-Scholes value of the underwater options and the 124 PART TWO Elements of the Solution07_200295_CH07_Delves 8/19/03 2:36 PM Page 124value of the new “replacement” options and then ... program, therefore, must address each of these elements of risk: executives’ risk tolerance, the company’s riskprofile, and shareholders’ expectation for the kinds of risks the com-pany and its ... options, if the stock goes up for whatever reason,then the options pay off. If the stock does not go up, then the optiondoes not pay off. Period. That’s the extent of the downside for the executive,...