The Subjective and Objective Evaluation of Incentive Stock Options
AbstractOwners of incentive options invariably hold undiversified portfolios. This paper derives a model for the subjective and objective values of such options. The subjective value—the value to the holder—is less than the market value because the option is held in an undiversified portfolio and because it is exercised suboptimally from the market perspective. The objective value is the cost to the firm of issuing the option and lies between the market and subjective values. This value recognizes the suboptimal exercise but not the undiversified discount. The model, which is the Black-Scholes model with modified parameters, is simple to use.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 79 (2006)
Issue (Month): 2 (March)
Contact details of provider:
Web page: http://www.journals.uchicago.edu/JB/
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- Jens Carsten Jackwerth & James E. Hodder, 2008.
"Managerial Responses to Incentives: Control of Firm Risk, Derivative Pricing Implications, and Outside Wealth Management,"
CoFE Discussion Paper, Center of Finance and Econometrics, University of Konstanz
08-07, Center of Finance and Econometrics, University of Konstanz.
- Hodder, James E. & Jackwerth, Jens Carsten, 2011. "Managerial responses to incentives: Control of firm risk, derivative pricing implications, and outside wealth management," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(6), pages 1507-1518, June.
- Jackwerth, Jens Carsten & Hodder, James E., 2008. "Managerial Responses to Incentives: Control of Firm Risk, Derivative Pricing Implications, and Outside Wealth Management," MPRA Paper 11643, University Library of Munich, Germany.
- Florian S. Peters & Alexander F. Wagner, 2012.
"The Executive Turnover Risk Premium,"
Tinbergen Institute Discussion Papers
12-021/2/DSF30, Tinbergen Institute.
- Florian S. PETERS & Alexander F. WAGNER, 2008. "The executive turnover risk premium," Swiss Finance Institute Research Paper Series, Swiss Finance Institute 08-11, Swiss Finance Institute.
- L. Rogers & José Scheinkman, 2007. "Optimal exercise of executive stock options," Finance and Stochastics, Springer, vol. 11(3), pages 357-372, July.
- Carmona, Julio & León, Angel & Vaello-Sebastiá, Antoni, 2011.
"Does Stock Return Predictability Affect ESO Fair Value?,"
QM&ET Working Papers
11-2, Universidad de Alicante, Departamento de Métodos Cuantitativos y Teoría Económica, revised 16 Jan 2012.
- Carmona, Julio & León, Angel & Vaello-Sebastià, Antoni, 2012. "Does stock return predictability affect ESO fair value?," European Journal of Operational Research, Elsevier, Elsevier, vol. 223(1), pages 188-202.
- Carola Frydman & Dirk Jenter, 2010.
CESifo Working Paper Series
3277, CESifo Group Munich.
- Carola Frydman & Dirk Jenter, 2010. "CEO Compensation," Annual Review of Financial Economics, Annual Reviews, Annual Reviews, vol. 2(1), pages 75-102, December.
- Carola Frydman & Dirk Jenter, 2010. "CEO Compensation," NBER Working Papers 16585, National Bureau of Economic Research, Inc.
- Frydman, Carola & Jenter, Dirk, 2010. "CEO Compensation," Research Papers, Stanford University, Graduate School of Business 2069, Stanford University, Graduate School of Business.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).
If references are entirely missing, you can add them using this form.