Optimal investment for executive stockholders with exponential utility

Sascha Desmettre ()

Decisions in Economics and Finance, 2012, vol. 35, issue 2, 170 pages

Abstract: The scope of this paper is to enhance the model for the own-company stockholder (Desmettre et al. in Math Methods Oper Res 72(3):347–378, 2010 ), who can voluntarily performance-link his personal wealth to his management success by acquiring stocks in the own-company whose value he can directly influence via spending work effort. The executive is thereby characterized by a parameter of risk aversion and the two work effectiveness parameters inverse work productivity and disutility stress. We extend the model to a constant absolute risk aversion framework using an exponential utility/disutility setup. A closed-form solution is given for the optimal work effort an executive will apply and we derive the optimal investment strategies of the executive. Furthermore, we determine an up-front fair cash compensation applying an indifference utility rationale. Our study shows to a large extent that the results previously obtained are robust under the choice of the utility/disutility setup. Copyright Springer-Verlag 2012

Keywords: Portfolio choice; Executive stockholder; Work effort; Exponential utility; M52; G11 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1007/s10203-011-0119-x (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:decfin:v:35:y:2012:i:2:p:151-170

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10203/PS2

DOI: 10.1007/s10203-011-0119-x

Access Statistics for this article

Decisions in Economics and Finance is currently edited by Paolo Ghirardato

More articles in Decisions in Economics and Finance from Springer, Associazione per la Matematica
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().