It is often argued that Black-Scholes (1973) values overstate the subjective value of stock options granted to risk-averse and under-diversified executives. We construct a "representative" Swiss executive and extend the certainty- equivalence approach presented by Hall and Murphy (2002) to...

We derive a simple formula for the cost of the ESO to the firm at the grant date under the assumption that the executive has a constant market-to-strike multiple. The market-to-strike multiple is defined as the ratio of the market price on exercise to the strike price of the ESO. The expected...

This paper develops a new pricing model for American-style indexed executive stock options. We rely on a basic model framework and an indexation scheme first proposed by Johnson and Tian (2000a) in their analysis of European-style indexed options. Our derivation of the valuation formula...

More than half of S&P 500 CEOs receive options annually, however extant valuation models have not accounted for portfolio considerations. We show the inability of executives to diversify means portfolio effects matter: exercise thresholds and shareholder costs are lower than for stand-alone...

We examine the ex-ante optimality of repricing of executive stock options while considering the tax effects of new accounting rules associated with traditional repricing. Although there has been a body of empirical literature on repricing, the optimality of repricing after considering the...

Executive stock options (ESOs) are widely used to reward employees and represent major items of corporate liability. The International Accounting Standards Board IFRS9 financial reporting standard which came into full effect on 1-Jan 2018, along with its Australian implementation AASB9, requires...

This paper examines the incentives from stock options for loss-averse employees subject to probability weighting. Employing the certainty equivalence principle, I built on insights from Cumulative Prospect Theory (CPT) to derive a continuous time model to value options from the perspective of a...

We obtain explicit expressions for the subjective, objective and market value of perpetual executive stock options (ESOs) under exogenous employment shocks driven by an independent Poisson process. Previously, we obtain the executive's optimal exercise policy from the subjective valuation that...