Abstract
We observe that the incentive effects of traditional stock options can be improved by making the option's payoff concave in the region of a high stock price at maturity. To reflect the concave property, we propose two types of executive stock options: a generalized power option and an ordinary bull spread. Under the [Hall and Murphy (): American Economic Review 209‐214, Hall and Murphy () Journal of Accounting and Economics 33: 3‐42] framework, we show that the generalized power option with high concavity and the ordinary bull spread generate greater incentive effects than those of traditional options or the [Bernard, Boyle, and Chen (): The Journal of Derivatives 23: 9‐20] power executive options.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
