Stock Options for Undiversified Executives

  title={Stock Options for Undiversified Executives},
  author={Brian J. Hall and Kevin J. Murphy},
We employ a certainty-equivalence framework to analyze the cost, value and pay/performance sensitivity of non-tradable options held by undiversified, risk-averse executives. We derive “Executive Value” lines, the risk-adjusted analogues to BlackScho9les lines. We show that distinguishing between “executive value” and “company cost” provides insight into many issue regarding stock option practice including: executive views about Black-Scholes values; tradeoffs between options, restricted stock… CONTINUE READING
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