Incentives of Stock Options Based Compensation
AbstractWe 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 companyâs stock but is able to achieve a partial insurance through trading in a correlated market portfolio. We define the executiveâs 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. Copyright Springer Science+Business Media, Inc. 2005
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Bibliographic InfoPaper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 458.
Date of creation: 2003
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