Pricing executive stock options with averaging features under the Heston–Nandi GARCH model

Zhiwei Su and Xingchun Wang ()

Journal of Futures Markets, 2019, vol. 39, issue 9, 1056-1084

Abstract: In this paper, we focus on the pricing issue of four types of executive stock options (ESOs) in the Heston–Nandi generalized autoregressive conditional heteroskedasticity option pricing model. Based on the derived benchmark strike prices in the proposed framework, we obtain the closed‐form pricing formulae for four types of ESOs. In the numerical part, we investigate the sensitivity and cost efficiency of ESOs and suggest that systematic risk (stock β) and the fraction of wealth invested in restricted stock could impede the cost efficiency of ESOs.

Date: 2019
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