The practice of executives influencing their option compensation by setting a grant date retrospectively is known as backdating. Since executive stock options are usually granted at-the-money, selecting an advantageous to coincide with low price will be valuable executive. Empirical evidence shows that backdating grants was prevalent, particularly at firms highly volatile prices. Executives who...

NIKUNJ KAPADIA is with the Isenberg School of Management at the University of Massachusetts. T he recent proliferation of hedge funds has brought to the forefront the types of trading strategies that distinguish hedge funds from the more conservative mutual funds. Two major sets of trading strategies have been in the spotlight: market-neutral trades, and trades that rely on the spread between t...

In this paper we distinguish between operational risks depending on whether the operational risk naturally arises in the context of model risk. As the pricing model exposes itself to operational errors whenever it updates and improves its investment model and other related parameters. In this case, it is no longer optimal to implement the best model. Generally, an option is exercised in a jump-...

We extend Graham’s (1981) welfare analysis under uncertainty to a dynamic environment where the agent can delay and obtain information. The dynamic willingness to pay locus unifies the concepts of option price, dynamic WTP, commitment costs and quasi-option value. Option price (dynamic WTP) corresponds to the ex ante WTP when the agent ignores (recognises) the learning opportunity. The commitme...

This study gives an overview of retirement modelling, starting from the single-period consumption/leisure model up to the recent life-cycle multiple-decisions and joint retirement models, paying particular attention to the role played by the option value model in the economic literature on retirement. The option value model was initially interpreted as a sub-optimal solution of the dynamic prog...

This paper argues that the architecture of a codebase is a critical factor that lies at the heart of the open source development process. We define two observable properties of an architecture: (1) modularity and (2) option value. Developers can often make informed judgments about modularity and option value from early, partially implemented code releases. We show that codebases that are more m...