Henderson, Vicky
[VerfasserIn]
;
Sun, Jia
[Sonstige Person, Familie und Körperschaft];
Whalley, A. Elizabeth
[Sonstige Person, Familie und Körperschaft]
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments April 26, 2018 erstellt
Beschreibung:
Empirical evidence shows that backdating of executive stock option grants was prevalent, particularly at firms with highly volatile stock prices. Executives who have the opportunity to backdate should take this into account in their valuation. We quantify the value to a risk averse executive of a “lucky” option grant with strike chosen to coincide with the lowest stock price of the month. We show the ex ante gain to risk averse executives from the ability to backdate increases with both risk aversion and with volatility, and is significant in magnitude. Our model involves valuing the embedded partial American lookback option in a utility indifference setting with key features of risk aversion, inability to diversify and early exercise