TY - JOUR
T1 - The Valuation of Executive Stock Options in an Intensity-Based Framework
AU - Carr, P.
AU - Linetsky, V.
PY - 2000
Y1 - 2000
N2 - This paper presents a general intensity-based framework to value executive stock options (ESOs). It builds upon the recent advances in the credit risk modeling arena. The early exercise or forfeiture due to voluntary or involuntary employment termination and the early exercise due to the executive’s desire for liquidity or diversification are modeled as an exogenous point process with random intensity dependent on the stock price. Two analytically tractable specifications are given where the ESO value, expected time of exercise or forfeiture, and the expected stock price at the time of exercise or forfeiture are calculated in closed-form. JEL classification: G13, G39, M41.
AB - This paper presents a general intensity-based framework to value executive stock options (ESOs). It builds upon the recent advances in the credit risk modeling arena. The early exercise or forfeiture due to voluntary or involuntary employment termination and the early exercise due to the executive’s desire for liquidity or diversification are modeled as an exogenous point process with random intensity dependent on the stock price. Two analytically tractable specifications are given where the ESO value, expected time of exercise or forfeiture, and the expected stock price at the time of exercise or forfeiture are calculated in closed-form. JEL classification: G13, G39, M41.
U2 - 10.1023/A:1011441824560
DO - 10.1023/A:1011441824560
M3 - Article
VL - 4
SP - 211
EP - 230
JO - European Finance Review
JF - European Finance Review
ER -