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Executive Stock Option Pricing in China Under Stochastic Volatility

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  • Terence Tai Leung Chong
  • Yue Ding
  • Yong Li

Abstract

In this article, on the basis of stochastic volatility (SV) models, we extend the approach of option pricing for executive stock options (ESOs) under FAS 123. Based on this extension, a sample of Chinese listed companies’ ESOs are priced. We analyze the effect of the some important financial variables on the implementation of ESOs. It is found that in China, firms with higher market risk and larger size are likely to have a higher ESO proportion in their executive incentive plans. The effects of the book‐to market ratio, stock price volatility, executive shareholding proportion, and the leverage ratio are also examined. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 35:953–960, 2015

Suggested Citation

  • Terence Tai Leung Chong & Yue Ding & Yong Li, 2015. "Executive Stock Option Pricing in China Under Stochastic Volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(10), pages 953-960, October.
    • Handle: RePEc:wly:jfutmk:v:35:y:2015:i:10:p:953-960
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    1. Cuny, Charles J. & Jorion, Philippe, 1995. "Valuing executive stock options with endogenous departure," Journal of Accounting and Economics, Elsevier, vol. 20(2), pages 193-205, September.
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    Cited by:

    1. Hong, Hui & Bian, Zhicun & Chen, Naiwei, 2020. "Leverage effect on stochastic volatility for option pricing in Hong Kong: A simulation and empirical study," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    2. Wang, Xingchun, 2021. "The values and incentive effects of options on the maximum or the minimum of the stock prices and market index," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    3. Zhiwei Su & Xingchun Wang, 2019. "Pricing executive stock options with averaging features under the Heston–Nandi GARCH model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(9), pages 1056-1084, September.
    4. Wang, Xingchun, 2018. "Valuing executive stock options under correlated employment shocks," Finance Research Letters, Elsevier, vol. 27(C), pages 38-45.

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