Are we using the wrong letters? An analysis of executive stock option Greeks
详细信息 查看全文
- 作者：Susana álvarez-Díez (1)
J. Samuel Baixauli-Soler (2)
María Belda-Ruiz (2) - 关键词：Executive stock options ; Delta ; Vega ; Risk ; taking ; Stock return volatility
- 刊名：Central European Journal of Operations Research
- 出版年：2014
- 出版时间：June 2014
- 年：2014
- 卷：22
- 期：2
- 页码：237-262
- 全文大小：
- 参考文献：1. Aggarwal R, Samwick A (1999) The other side of the trade-off: the impact of risk on executive compensation. J Polit Econ 107:65-05 CrossRef
2. Aggarwal R, Samwick A (2002) The other side of the trade-off: the impact of risk on executive compensation-a reply. Dartmouth College Working Paper. http://papers.ssrn.com/sol3/papers.cfm?
3. Ammann M, Seiz R (2004) Valuing employee stock options: Does the model matter? Finan Anal J 60:21-37
4. Anderson TW, Hsiao C (1981) Estimation of dynamic models with error components. J Am Stat Assoc 76:589-06 CrossRef
5. Anderson M, Muslu V (2011) Implications of estimation error in option grants for evaluating CEO pay. Working Paper. http://ssrn.com/abstract=1623467
6. Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev Econ Stud 58:277-97 CrossRef
7. Armstrong CS, Vashishtha R (2012) Executive stock options, differential risk-taking incentives, and firm value. J Finan Econ 104:70-8 CrossRef
8. Baltagi BH (2001) Econometric analysis of panel data. Wiley, Chichester
9. Bettis JC, Bizjak JM, Lemmon ML (2005) Exercise behavior, valuation, and the incentive effects of employee stock options. J Finan Econ 76:445-70 CrossRef
10. Black F, Scholes M (1973) The pricing of options and corporate liabilities. J Polit Econ 81:637-54 CrossRef
11. Brenner M, Sundaram RK, Yermack D (2000) Altering the terms of executive stock options. J Finan Econ 57:103-28 CrossRef
12. Brockman P, Martin X, Unlu E (2010) Executive compensation and the maturity structure of corporate debt. J Finan 65:1123-161 CrossRef
13. Brown P, Szimayer A (2008) Valuing executive stock options: performance hurdles, early exercise and stochastic volatility. Acc Finan 48:363-89 CrossRef
14. Bryan S, Hwang L, Lilien S (2002) CEO stock-based compensation: an empirical analysis of incentive-intensity, relative mix and economic determinants. J Bus 73:661-93 CrossRef
15. Carpenter JN (1998) The exercise and valuation of executive stock options. J Finan Econ 48:127-58 CrossRef
16. Carr P, Linetsky V (2000) The valuation of executive stock options in an intensity-based framework. Eur Finan Rev 4:211-30 CrossRef
17. Chava S, Purnanandam A (2010) CEOs versus CFOs: incentives and corporate policies. J Finan Econ 97:263-78 CrossRef
18. Chidambaran NK, Prabhala NR (2003) Executive stock option repricing, internal governance mechanisms, and management turnover. J Finan Econ 69:153-89 CrossRef
19. Cohen R, Hall B, Viceira L (2000) Do executive stock options encourage risk-taking? Harvard Business School Working Paper. http://www.people.hbs.edu/lviceira/cohallvic3.pdf
20. Coles JL, Daniel ND, Naveen L (2006) Managerial incentives and risk-taking. J Finan Econ 79:431-68 CrossRef
21. Core J, Guay W (1999) The use of equity grants to manage optimal equity incentive levels. J Acc Econ 28:151-84 CrossRef
22. Core J, Guay W (2002a) Estimating the value of employee stock options portfolios and their sensitivities to price and volatility. J Acc Res 40:613-30
23. Core J, Guay W (2002b) The other side of the trade-off: the impact of risk on executive compensation a revised comment. University of Pennsylvania Working Paper. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=292955
24. Corrado CJ, Jordan BD, Miller TW, Stansfield JJ (2001) Repricing and employee stock option valuation. J Bank Finan 25:1059-082 CrossRef
25. Cvitanic J, Wiener Z, Zapatero F (2008) Analytic pricing of employee stock options. Rev Finan Stud 21:683-24 CrossRef
26. Demsetz H, Lehn K (1985) The structure of corporate ownership: causes and consequences. J Polit Econ 93:1155-177 CrossRef
27. Denis DJ, Hanouna P, Sarin A (2006) Is there a dark side to incentive compensation? J Corp Finan 12: 467-88
28. Devers CE, Cannella AA, Reilly GP, Yoder ME (2007) Executive compensation: a multidisciplinary review of recent developments. J Manag 33:1016-072
29. Dong Z, Wang C, Xie F (2010) Do executive stock options induce excessive risk taking? J Bank Finan 34:2518-529 CrossRef
30. Duan JC, Wei J (2005) Executive stock options and incentive effects due to systematic risk. J Bank Finan 29:1185-211 CrossRef
31. Dybvig PH, Loewenstein M (2003) Employee reload options: pricing, hedging, and optimal exercise. Rev Finan Stud 16:145-71
32. Frydman C, Saks R (2010) Executive compensation: a new view from a long-term perspective, 1936-005. Rev Finan Stud 23:2099-138 CrossRef
33. Fu X, Ligon JA (2010) Exercised of executive stock options on the vesting date. Finan Manag 39:1097-125 CrossRef
34. Goergen M, Renneboog L (2011) Managerial compensation. J Corp Finan 17:1068-077 CrossRef
35. Guay W (1999) The sensitivity of CEO wealth to equity risk: an analysis of the magnitude and determinants. J Finan Econ 53:43-1 CrossRef
36. Hall BJ, Murphy KJ (2003) The trouble with stock options. J Econ Perspect 17:49-0 CrossRef
37. Hemmer T, Kim O, Verrecchia RE (1999) Introducing convexity into optimal compensation contracts. J Acc Econ 28:307-27 CrossRef
38. Himmelberg C, Hubbard R, Palia D (1999) Understanding the determinants of managerial ownership and the link between ownership and performance. J Finan Econ 53:353-84 CrossRef
39. Huddart S (1994) Employee stock options. J Acc Econ 18:207-31 CrossRef
40. Huddart S, Lang M (1996) Employee stock option exercises an empirical analysis. J Acc Econ 21:5-3 CrossRef
41. Hull JC, White A (2004) How to value employee stock options. Finan Anal J 60:114-19 CrossRef
42. Jennergren LP, N?slund B (1993) A comment on valuation of executive stock options and the FASB proposal. Acc Rev 68:179-83
43. Jin L (2002) CEO compensation, diversification and incentives. J Finan Econ 66:29-3 CrossRef
44. Johnson SA, Tian YS (2000) The value and incentive effects of nontraditional executive stock option plans. J Finan Econ 57:3-4 CrossRef
45. Kaplan SN (2012) Executive compensation and corporate governance in the U.S.: perceptions, facts and challenges. Working Paper. http://ssrn.com/abstract=2134208
46. Kaplan SN, Minton BA (2012) How has CEO turnover changed? Int Rev Finan 12:57-7 CrossRef
47. Knopf JD, Nam J, Thornton JH (2002) The volatility and price sensitivities of managerial stock option portfolios and corporate hedging. J Finan 57:801-13 CrossRef
48. Kulatilaka N, Marcus AJ (1994) Valuing employee stock options. Finan Anal J 50:46-6 CrossRef
49. León A, Vaello-Sebastiá A (2009) American GARCH employee stock option valuation. J Bank Finan 33:1129-143 CrossRef
50. Leung T, Sircar R (2009) Accounting for risk aversion, vesting, job termination risk and multiple exercises in valuation of employee stock options. Math Finan 19:99-28 CrossRef
51. Lewellen K (2006) Financing decisions when managers are risk averse. J Finan Econ 82:551-89 CrossRef
52. Low A (2009) Managerial risk-taking behavior and equity-based compensation. J Finan Econ 92:470-90 CrossRef
53. Marquardt C (2002) The cost of employee stock options grants: an empirical analysis. J Acc Res 40:1191-217 CrossRef
54. O’Connor ML, Rafferty M (2010) Incentive effects of executive compensation and the valuation of firm assets. J Corp Finan 16:431-42 CrossRef
55. Rajgopal S, Shevlin T (2002) Empirical evidence on the relation between stock option compensation and risk taking. J Acc Econ 33:145-71 CrossRef
56. Sanders WMG, Hambrick DC (2007) Swinging for the fences: the effets of CEO stock options on company risk taking and performance. Acad Manag J 50:1055-078 CrossRef
57. Sircar R, Xiong W (2007) A general framework for valuing executive stock options. J Econ Dyn Control 31:2317-349 CrossRef
58. Tian YS (2004) Too much of a good incentive? The case of executive stock options. J Bank Finan 28:1225-245 CrossRef
59. Tong Z (2010) CEO risk incentives and corporate cash holdings. J Bus Finan Acc 37:1248-280 CrossRef
60. Williams MA, Rao RP (2006) CEO stock options and equity risk incentives. J Bus Finan Acc 33:26-4 CrossRef - 作者单位：Susana álvarez-Díez (1)
J. Samuel Baixauli-Soler (2)
María Belda-Ruiz (2)
1. Departamento de Métodos Cuantitativos para la Economía, Facultad de Economía y Empresa, Universidad de Murcia, 30100, Murcia, Spain
2. Departamento de Organización de Empresas y Finanzas, Facultad de Economía y Empresa, Universidad de Murcia, 30100, Murcia, Spain - ISSN：1613-9178
文摘
Greek letters, in particular delta and vega based on the Black–Scholes model (BS), have been widely used to estimate the sensitivity of CEO wealth to changes in stock price (delta) and stock return volatility (vega) and to evaluate the executive stock options (ESOs) granted on the basis of performance and risk. However, the BS model does not take into account the main features of ESOs and therefore the delta and vega values it produces are not valid. The Cvitanic–Wiener–Zapatero model (CWZ) is an alternative model to Black–Scholes for valuing ESOs. It has a closed formula and considers the main features of ESOs. We carry out a sensitivity analysis to show that research on option-based compensation and its risk-taking effects is not robust in ESO pricing models. The sensitivity analysis consists of comparing the impact of the common parameters of the BS and CWZ models, as well as the effect of the specific parameters of the CWZ model, on the sensitivity of CEO wealth to stock price and stock volatility. Additionally, using panel data methodology, we develop an empirical analysis to illustrate the influence of stock return volatility and different corporate policies on both CEO wealth sensitivities.