American Home Shield 2006 Annual Report Download - page 66

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Under the lattice-based model, expected volatilities are based on a term structure of implied volatilities from traded options on the
Company's stock and historical volatility of the Company's stock. The Company uses historical data to estimate option exercise and
employee termination within the valuation model. The expected term of options granted is derived from the output of the option
valuation model and represents the period of time that options granted are expected to be outstanding. The range of risk-free rates
for periods within the contractual life of the options is based on the U.S. Treasury forward curve rate and uses a term structure.
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