Executive Exercise Explained : Patterns for Stock Options †

@inproceedings{Henderson2006ExecutiveEE,
  title={Executive Exercise Explained : Patterns for Stock Options †},
  author={Vicky Henderson},
  year={2006}
}
It is well documented that executives granted stock options tend to exercise early and in a few large transactions or “blocks”. Standard risk-neutral valuation models cannot explain these patterns, and attempts to capture the exercise behavior of risk averse executives have been limited to the special case of one option. This paper solves for the optimal exercise behavior for a risk averse executive who is granted multiple stock options. We show that traditional utility-based models do not… CONTINUE READING

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