Valuing executive stock options under correlated employment shocks

Xingchun Wang ()

Finance Research Letters, 2018, vol. 27, issue C, 38-45

Abstract: In this paper, we present a valuation framework for pricing executive stock options that incorporates the vesting period, employment shocks as well as time-varying variances of the stock. A GARCH process is used to describe the variance of the stock and employment shocks are captured by a doubly stochastic Poisson process. Additionally, the proposed model allows for the correlation between the intensity and the variance of the stock. In the proposed framework, we derive a closed-form expression for executive stock options and investigate executive stock option prices numerically.

Keywords: Executive stock options; Employment shocks; GARCH models; Doubly stochastic Poisson process (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:27:y:2018:i:c:p:38-45

DOI: 10.1016/j.frl.2018.02.028

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