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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26862
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| Title: | The Exercise and Valuation of Executive Stock Options |
| Authors: | Carpenter, Jennifer N. |
| Keywords: | Executive stock options
Exercise policy
Option valiation
Nontranferable option
Utility maximization |
| Issue Date: | 21-Nov-1997 |
| Series/Report no.: | FIN-98-017 |
| Abstract: | In theory, hedging restrictions faced by managers make executive stock
options more difficult to value than ordinary options, because they
imply that exercise policies of managers depend on their preferences and
endowments. Using data on option exercises from 40 firms, this paper
shows that a simple extension of the ordinary American option model
which introduces random, exogenous exercise and forfeiture predicts
actual exercise times and payoffs just as well as an elaborate
utility-maximizing model that explicitly accounts for the
nontransferability of options. The simpler model could therefore be more
useful than the preference-based model for valuing executive options in practice. |
| URI: | http://hdl.handle.net/2451/26862 |
| Appears in Collections: | Economics Working Papers
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