Incentives of Stock Option Based Compensation

Elettra Agliardi and Rainer Andergassen

Review of Quantitative Finance and Accounting, 2005, vol. 25, issue 1, 32 pages

Abstract: We introduce explicitly the effort as a choice variable in a continuous time utility maximisation framework of an executive who is partly compensated with stock options. We solve the model in the case where the executive is not allowed to trade in the company’s stock but is able to achieve a partial insurance through trading in a correlated market portfolio. We define the executive’s value of the options through a certainty equivalence approach both in the case of European call options and non-standard capped stock options and study the behaviour of the reservation price as relevant parameters change. Copyright Springer Science+Business Media, Inc. 2005

Keywords: incentives; executive stock options; unhedgeable risks; utility maximisation; non-standard options compensation (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (4)

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Working Paper: Incentives of Stock Options Based Compensation (2003)
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DOI: 10.1007/s11156-005-3177-8

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