Travelers 2014 Annual Report Download - page 232

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. SHARE - BASED INCENTIVE COMPENSATION (Continued)
term of the related original option. As of December 31, 2012, there were no longer any options eligible for reload.
The fair value of each option award is estimated on the date of grant by application of a variation of the Black - Scholes option pricing model
using the assumptions noted in the following table. The expected term of newly granted stock options is the time to vest plus half the remaining
time to expiration. This considers the vesting restriction and represents an even pattern of exercise behavior over the remaining term. Reload
options were exercisable for the remaining term of the original option and therefore generally had a shorter expected term. The expected volatility
assumption is based on the historical volatility of the Company's common stock for the same period as the estimated option term based on the mid
-
month of the option grant. The expected dividend is based upon the Company's current quarter dividend annualized and assumed to be constant
over the expected option term. The risk
- free interest rate for each option is the interpolated market yield for the mid - month of the option grant on a
U.S. Treasury bill with a term comparable to the expected option term of the granted stock option. Shares received through option exercises under
the reload program were subject to either a one
- year or two - year restriction on sale. A discount, as measured by the estimated cost of protecting
against changes in market value—5% for one
- year sales restrictions and 10% for two - year sales restrictions—had been applied to the fair value of
reload options granted to reflect these sales restrictions. The following assumptions were used in estimating the fair value of options on grant date
for the years ended December 31, 2014, 2013 and 2012:
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2014
Original Grants
Expected term of stock options
6 years
Expected volatility of the Company's stock
27.2% - 27.5%
Weighted average volatility
27.5%
Expected annual dividend per share
$2.00 - $2.20
Risk - free rate
1.81% - 1.82%
2013
Original Grants
Expected term of stock options
6 years
Expected volatility of the Company's stock
28.7% - 28.8%
Weighted average volatility
28.8%
Expected annual dividend per share
$1.84
Risk - free rate
1.11% - 1.14%
2012
Original Grants
Reload Grants
Expected term of stock options
6 years
1 year
Expected volatility of the Company's stock
28.5% - 28.6%
22.9% - 23.5%
Weighted average volatility
28.6%
23.4%
Expected annual dividend per share
$1.64 - $1.84
$1.64 - $1.84
Risk - free rate
1.02% - 1.17%
0.10% - 0.17%