Executive stock options portfolio effects

CiteSeerX — Executive Stock Options: Portfolio Effects

 

executive stock options portfolio effects

Jan 25,  · Executive Stock Options, Differential Risk-Taking Incentives, and Firm Value. Since ESOs give CEOs incentives to alter their firms’ risk profile through both their sensitivity to stock return volatility, or vega, and their sensitivity to stock price, or delta, we examine both effects. We show that, since risk-averse executives are exposed to unhedgeable risk via trading constraints, their exercise behaviour and the cost of the options to shareholders depend upon the size and composition of remaining option holdings. Portfolio effects matter, both to the executive, lowering the moneyness required for exercise, and to. In contrast to a risk-neutral setting, both exercise thresholds and costs depend on an option’s position in the optimal exercise order. An option’s cost varies with the maturities and, nonlinearly, with the strike prices of other options in the executive’s portfolio.


Employee Stock Option (ESO) Definition


We show that, executive stock options portfolio effects, since risk-averse executives are exposed to unhedgeable risk via trading constraints, their exercise behaviour and the cost of the options to shareholders depend upon the size and composition of remaining option holdings.

Portfolio effects matter, both to the executive, lowering the moneyness required for exercise, and to shareholders, significantly reducing the cost and accounting expense of options which are part of a portfolio. The implications of our model, for which options should be exercised first, and how exercise can be induced by new grants, match recent empirical findings.

Ignoring portfolio composition may invalidate estimates of exercise thresholds, bias inferences about executive characteristics e. Her research interests are in dynamic corporate finance, in particular the application of option valuation techniques to contracts and irreversible investment decisions. Current projects include the valuation of Executive Stock Options ESOsincorporating risk aversion and interactions between multiple options as well as ESO backdating, and the optimal timing of control of invasive pests and pathogens applied to forestryinvestigating the impact of managerial preferences and government subsidies, executive stock options portfolio effects.

In earlier work she investigated the valuation and hedging of financial options incorporating transaction costs. Tea and Coffee will be provided prior to the start executive stock options portfolio effects the Seminar.

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Executive stock options portfolio effects in Canada

 

executive stock options portfolio effects

 

Vicky Henderson (The Oxford-Man Institute), “Executive Stock Options: Portfolio Effects”, Fédération des Banques Françaises Seminar, TSE, March 12, , –, room MF Abstract Executives receiving new grants of stock options each year will build up a portfolio of options with differing strikes and maturities. We show that, since risk-averse executives are exposed to unhedgeable risk via trading constraints, their exercise behaviour and the cost of the options to shareholders depend upon the size and composition of remaining. Jan 25,  · Executive Stock Options, Differential Risk-Taking Incentives, and Firm Value. Since ESOs give CEOs incentives to alter their firms’ risk profile through both their sensitivity to stock return volatility, or vega, and their sensitivity to stock price, or delta, we examine both effects.