Incentives of Stock Options Based Compensation

Elettra Agliardi and Rainer Andergassen

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

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 nonstandard capped stock options and study the behaviour of the reservation price as relevant parameters change.

Date: 2003
New Economics Papers: this item is included in nep-fmk
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Journal Article: Incentives of Stock Option Based Compensation (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:458

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