Employee Stock Option Compensation

Stock options have become a common part of the compensation of executives in many companies. Their use has created a significant amount of controversy among academics as well as among the general public.

Florian Cornelis Wolff addresses an aspect often overlooked in debate but crucial for assessment: How do executives themselves see their stock options? How do their personal expectations and risk preferences affect the value they assign to them? To answer these questions classical option valuation approaches need to be combined with recent findings from the field of behavioural finance. The result is quite surprising: It is because people behave irrationally that stock options may be worth their money.

Autorentext

Dr. Florian Wolff promovierte bei Prof. Dr. Peter-J. Jost am Lehrstuhl für Organisationstheorie der Wissenschaftlichen Hochschule für Unternehmensführung (WHU) in Vallendar. Er ist Unternehmensberater bei McKinsey & Company, Inc. in München.

Klappentext

Florian Wolff analyses how executives perceive their stock options and how their personal expectations and risk preferences affect the value they assign to them. He shows that stock options may be worth their money because people behave irrationally.

Inhalt

Theoretical and empirical assessments Review of risk-neutral valuation models Utility-based stock-options valuation A new model to value executive stock options Experimental test of subjective valuations