Indexed executive stock options

• 成果类型: Article
• 署名作者: Johnson, SA; Tian, YS
• 署名单位: Louisiana State University System; Louisiana State University; York University - Canada; University System of Ohio; University of Cincinnati
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/S0304-405X(00)00050-7
• 发表日期: 2000
• 页码: 35-64
• 关键词: executive stock options; Executive compensation; Option valuation; indexed options

摘要

We design and derive a pricing model for an executive stock option with a strike price indexed to a benchmark and investigate its valuation and incentive implications. In both up and down markets, the indexed option filters out common risks beyond the executive's control, thereby increasing the efficiency of incentive contracts, The indexed option has a different payoff structure and much lower initial value than a traditional option. Incentive effects of the indexed option also differ from those of traditional options. We design an optional penalty function to reduce the payoff if executives manipulate specified model parameters such as volatility. (C) 2000 Elsevier Science S.A. All rights reserved. JEL classification: J33; G13.