Backdating executive stock options--An ex ante valuation
AbstractWhen backdating executive stock options (ESOs), the exercise price is set in favor of the recipient executive. Relative to a non-backdated benchmark, we find an (ex ante) upper bound for the cost of backdating to shrink from 10% to about 3.7%, as a consequence of the regime change represented by the Sarbanes-Oxley act (SOX). We frame the backdating behavior as a (compound) exotic option, considering both simple and extended models of the underlying ESO--in the latter case we draw on the analytical ESO models of Sircar and Xiong (2007). Post-SOX, we use a Longstaff-Schwartz inspired least squares Monte Carlo approach.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 35 (2011)
Issue (Month): 10 (October)
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Web page: http://www.elsevier.com/locate/jedc
Backdating of executive stock options Exotic lookback options SOX;
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