Evaluating Incentive Options∗
نویسندگان
چکیده
We provide an analytical and flexible framework to evaluate executive stock options. Our model takes into account the vesting period, American style, resetting and reloading provisions that are features of many options programs, and also considers the trading and hedging restrictions on executives. We identify a recursive structure in the stream of options that are granted to the executive over the course of her employment. By exploiting this, we are able to obtain a near-explicit formula for the option value. This enables us to discuss the joint effects of the different features on the exercising strategies, subjective valuation and granting cost of incentive options. Especially, we highlight some significant interactions among them. JEL classification: G13; J33; G30; M41
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