On the Relevance of Employee Stock Option Behavioral Models

Hamza Bahaji and Jean-François Casta
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Hamza Bahaji: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Jean-François Casta: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: The behavioral framework have proven successful in explaining several puzzling aspects of executive stock-based compensation contracts. A recent literature suggests that both the Cumulative Prospect Theory and the Rank Dependent Expected Utility theory lead to better predictions of Employee Stock Options (ESO) exercise decisions. The aim of this chapter is to provide an overview of those behavioral ESO models and discuss their implications to (1) the valuation of ESO; (2) the design of optimal ESO contracts; and (3) the assessment of employee sentiment.

Keywords: Stock Option; Exercise Decisions; Rank-Dependent Expected Utility; Prospect Theory; Employee Sentiment (search for similar items in EconPapers)
Date: 2023
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Published in Bourghelle, D.; Grandin, P.; Jawadi, F.; Rozin, P. Behavioral Finance and Asset Prices: The Influence of Investor's Emotions, Springer International Publishing, pp.85-101, 2023, Contributions to Finance and Accounting, 978-3-031-24485-8. ⟨10.1007/978-3-031-24486-5_4⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04213549

DOI: 10.1007/978-3-031-24486-5_4

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