Abstract
In this paper, we focus on the pricing issue of four types of executive stock options (ESOs) in the Heston–Nandi generalized autoregressive conditional heteroskedasticity option pricing model. Based on the derived benchmark strike prices in the proposed framework, we obtain the closed-form pricing formulae for four types of ESOs. In the numerical part, we investigate the sensitivity and cost efficiency of ESOs and suggest that systematic risk (stock β) and the fraction of wealth invested in restricted stock could impede the cost efficiency of ESOs.
| Original language | English |
|---|---|
| Pages (from-to) | 1056-1084 |
| Number of pages | 29 |
| Journal | Journal of Futures Markets |
| Volume | 39 |
| Issue number | 9 |
| Early online date | 8 Aug 2019 |
| DOIs | |
| Publication status | Published - Sept 2019 |
| Externally published | Yes |
Bibliographical note
The authors would like to thank Gechun Liang, Yong Wang, the anonymous referees, and the editor, Robert Webb, for their extensive and constructive suggestions, which led to significant improvements of the paper. All errors are our responsibility. Z.S. is at the PBC School of Finance, Tsinghua University, Beijing, China. X.W. is at the School of International Trade and Economics, University of International Business and Economics, Beijing, China.Publisher Copyright:
© 2019 Wiley Periodicals, Inc.
Funding
This study was supported by The National Natural Science Foundation of China (Grant Nos. 11701084 and 11671084) and the Fundamental Research Funds for the Central Universities in UIBE (Grant No. CXTD9-01). X.W. was also supported by the China Scholarship Council (CSC No. 201806645036).
Keywords
- Asian options
- executive stock options
- GARCH models
- indexed options