Options with stochastic lives

L. Peter Jennergren and Bertil Näslund

Scandinavian Journal of Management, 1993, vol. 9, issue Supplement 1, S67-S72

Abstract: This paper shows how to value options with stochastic lives, i.e. options which may be cancelled but where the underlying stocks retain their value. The executive stock option, which is cancelled if the executive takes a job in another firm, is a typical example. The paper also contains a comparison with a somewhat similar case in a paper by Merlon [Journal of Financial Economics (1976), pp. 125-144], where the underlying stock, rather than merely the option, may suddenly become worthless.

Keywords: Options; executive; compensation; jump; diffusion; stochastic; process (search for similar items in EconPapers)
Date: 1993
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