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 assess...

We integrate an agency problem into search theory to study executive compensation in a market equilibrium. A CEO can choose to stay or quit and search after privately observing an idiosyncratic shock to the firm. The market equilibrium endogenizes CEOs' and firms' outside options and captures...

We analyze the American option valuation problem with the forward performance criterion introduced by Musiela and Zariphopoulou (2008). In this framework, utility evolves forward in time without reference to a specific future time horizon. Moreover, risk preferences change with stochastic market...

We contribute to the previous literature on the use of derivatives by studying separately the determinants for profit seeking versus hedging in a sample of firms from four different Nordic countries. While the hedging motive clearly dominates, more than half of the firms in our sample give some...

Labor market analysis shows the employee stock option (ESO) is a delayed-payment contract in which the option is exchanged for labor services. Under this delayed-payment approach, the ESO is modeled as an installment option, where the installment premiums are wage concessions determined under an...

This paper examines how an option plan that rewards managers for firm performance relative to some market or industry benchmark should be structured. Relative-performance-based compensation advocates contend that conventional stock options do not adequately discriminate between strong and weak...

This study presents significant factors that affect firms' decision whether to repurchase shares or not. Empirical results show that when the debt ratio is lower, the stock price is seriously underpriced and the firm size is larger, firms tend to buyback their own shares. Regarding employee...

In recent years several companies have offered employees the opportunity to transfer out-of-the-money options to a financial institution. This paper is a clinical study of a high-profile program offered by Microsoft in 2003. This program contained some complexities that likely made it...

In this study, I examine the relation between managerial incentives from holdings of company stock and options and stock option repricing. Specifically, given that options provide both incentives to increase risk as well as stock price, firms must be cognizant that executives may increasingly...