Abstract
In this paper, we investigate executive stock options with endogenous departure and time-varying variances. We use a Generalized Autoregressive Conditional Heteroskedasticity process to capture the variance process of the log stock price. In addition, we take into consideration the departure risk of the executive and assume that the probability of remaining employed has a power form of stock price ratios. After deriving the closed-form pricing formulae of executive stock options, we illustrate the effects of the departure risk on the values of executive stock options.
| Original language | English |
|---|---|
| Pages (from-to) | 409-433 |
| Number of pages | 25 |
| Journal | Probability in the Engineering and Informational Sciences |
| Volume | 32 |
| Issue number | 3 |
| Early online date | 11 Aug 2017 |
| DOIs | |
| Publication status | Published - 1 Jul 2018 |
| Externally published | Yes |
Bibliographical note
Publisher Copyright:© Cambridge University Press 2017.
Keywords
- departure risk
- endogenous departure
- executive stock options
- GARCH models