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Executive Stock Options and Time Diversification

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Author Info

  • Carmona, Julio

    ()
    (Universidad de Alicante, Departamento de Métodos Cuantitativos y Teoría Económica)

  • León, Ángel

    ()
    (Universidad de Alicante, Departamento de Métodos Cuantitativos y Teoría Económica)

  • Vaello-Sebastià, Antoni

    ()
    (University of Balear Islands, Dept. Economía de la Empresa)

Abstract

We study the time diversification issue in the context of the optimal asset allocation of an executive with decreasing relative risk aversion preferences, who is granted a package of European stock options. The asset menu for his unrestricted wealth includes both market portfolio and money account.

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Bibliographic Info

Paper provided by Universidad de Alicante, Departamento de Métodos Cuantitativos y Teoría Económica in its series QM&ET Working Papers with number 12-16.

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Length: 23 pages
Date of creation: 28 Nov 2012
Date of revision:
Handle: RePEc:ris:qmetal:2012_016

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Related research

Keywords: Decreasing relative risk aversion; portfolio choice; executive compensation;

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References

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  1. Michael W. Brandt & Amit Goyal & Pedro Santa-Clara & Jonathan Storud, 2004. "A Simulation Approach to Dynamic Portfolio Choice with an Application to Learning About Return Predictability," NBER Working Papers 10934, National Bureau of Economic Research, Inc.
  2. John H. Cochrane & Jesús Saá-Requejo, 1998. "Beyond Arbitrage: "Good-Deal" Asset Price Bounds in Incomplete Markets," CRSP working papers 430, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  4. Nicholas Barberis, 2000. "Investing for the Long Run when Returns Are Predictable," Journal of Finance, American Finance Association, vol. 55(1), pages 225-264, 02.
  5. Tian, Yisong S., 2004. "Too much of a good incentive? The case of executive stock options," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1225-1245, June.
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