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Incentives of Stock Option Based Compensation

Incentives of Stock Option Based Compensation We introduce explicitly the effort as a choice variable in a continuous time utility maximisation framework of an executive who is partly compensated with stock options. We solve the model in the case where the executive is not allowed to trade in the company’s stock but is able to achieve a partial insurance through trading in a correlated market portfolio. We define the executive’s value of the options through a certainty equivalence approach both in the case of European call options and non-standard capped stock options and study the behaviour of the reservation price as relevant parameters change. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Incentives of Stock Option Based Compensation

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References (19)

Publisher
Springer Journals
Copyright
Copyright © 2005 by Springer Science+Business Media, Inc.
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
DOI
10.1007/s11156-005-3177-8
Publisher site
See Article on Publisher Site

Abstract

We introduce explicitly the effort as a choice variable in a continuous time utility maximisation framework of an executive who is partly compensated with stock options. We solve the model in the case where the executive is not allowed to trade in the company’s stock but is able to achieve a partial insurance through trading in a correlated market portfolio. We define the executive’s value of the options through a certainty equivalence approach both in the case of European call options and non-standard capped stock options and study the behaviour of the reservation price as relevant parameters change.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jan 1, 2005

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