Economics at your fingertips  

Stock Options and Managerial Optimal Contracts

Manuel Santos () and Jorge Aseff ()
Additional contact information
Manuel Santos: W. P. Carey School of Business Department of Economics,

Working Papers from Department of Economics, W. P. Carey School of Business, Arizona State University

Abstract: In this paper we are concerned with the performance of stock option contracts in the provision of managerial incentives. In our simple framework, we restrict the space of contracts available to the principal to those conformed by a fixed payment and a package of call options on the firm's stock. We then offer a characterization of optimal stock option compensation schemes. As compared to the fixed payment and the option grant, we find that the strike price plays an intermediate role in the provision of insurance and incentives. We also develop some efficient algorithms for the computation of optimal contracts in which the observable outcome is drawn from a continuous distribution. These algorithms are useful to address some important issues such as the calibration of a principal-agent model, the degree of risk aversion compatible with current compensation schemes, and the performance of stock option contracts.

New Economics Papers: this item is included in nep-bec, nep-cmp and nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found ( [301 Moved Permanently]-->

Related works:
Journal Article: Stock options and managerial optimal contracts (2005) Downloads
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:

Access Statistics for this paper

More papers in Working Papers from Department of Economics, W. P. Carey School of Business, Arizona State University Contact information at EDIRC.
Series data maintained by Steve Salik ().

Page updated 2017-11-17
Handle: RePEc:asu:wpaper:2133304