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dc.contributor.authorColwell, D.
dc.contributor.authorFeldman, D.
dc.contributor.authorHu, Wei
dc.date.accessioned2017-01-30T12:49:38Z
dc.date.available2017-01-30T12:49:38Z
dc.date.created2015-07-16T06:21:49Z
dc.date.issued2015
dc.identifier.citationColwell, D. and Feldman, D. and Hu, W. 2015. Non-transferable non-hedgeable executive stock option pricing. Journal of Economic Dynamics and Control. 53: pp. 161-191.
dc.identifier.urihttp://hdl.handle.net/20.500.11937/25674
dc.description.abstract

To value non-transferable non-hedgeable (NTNH) contingent claims and price executive stock options (ESOs), we use a replication argument to translate portfolios with NTNH derivatives into portfolios of primary assets (only) with stochastic portfolio constraints. By identifying stochastic discount factors and finding subjective prices of NTNH European and American ESOs, for block and continuous partial exercise, we derive executives' optimal exercise policies, and use these to find objective prices/costs of ESOs to firms. Through numerical simulations, we obtain policy implications regarding ESOs' incentivizing efficiency. For the first time, we demonstrate that, unlike under block exercise, subjective prices under continuous partial exercise may be higher than objective ones. Moreover, volatility regimes and executives' "other wealth" are important in ESO pricing, and are thus essential to empirical executive compensation studies.

dc.publisherElsevier
dc.relation.urihttp://www.sciencedirect.com/science/article/pii/S0165188915000214
dc.subjectNon-transferable
dc.subjectExecutive stock options
dc.subjectConstrained portfolio optimization
dc.subjectStochastic discount factor
dc.subjectNon-hedgeable
dc.titleNon-transferable non-hedgeable executive stock option pricing
dc.typeJournal Article
dcterms.source.volume53
dcterms.source.startPage161
dcterms.source.endPage191
dcterms.source.issn0165-1889
dcterms.source.titleJournal of Economic Dynamics and Control
curtin.departmentSchool of Economics and Finance
curtin.accessStatusFulltext not available


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