Call options with concave payoffs: An application to executive stock options

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We observe that the incentive effects of traditional stock options can be improved by making the option's payoff concave in the region of a high stock price at maturity. To reflect the concave property, we propose two types of executive stock options: a generalized power option and an ordinary bull spread. Under the [Hall and Murphy (): American Economic Review 209-214, Hall and Murphy () Journal of Accounting and Economics 33: 3-42] framework, we show that the generalized power option with high concavity and the ordinary bull spread generate greater incentive effects than those of traditional options or the [Bernard, Boyle, and Chen (): The Journal of Derivatives 23: 9-20] power executive options.
Publisher
WILEY
Issue Date
2018-08
Language
English
Article Type
Article
Keywords

COMPENSATION; VALUATION; EXERCISE; PRICES

Citation

JOURNAL OF FUTURES MARKETS, v.38, no.8, pp.943 - 957

ISSN
0270-7314
DOI
10.1002/fut.21924
URI
http://hdl.handle.net/10203/244820
Appears in Collection
MT-Journal Papers(저널논문)
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