Abstract
In this paper, we present a valuation framework for pricing executive stock options that incorporates the vesting period, employment shocks as well as time-varying variances of the stock. A GARCH process is used to describe the variance of the stock and employment shocks are captured by a doubly stochastic Poisson process. Additionally, the proposed model allows for the correlation between the intensity and the variance of the stock. In the proposed framework, we derive a closed-form expression for executive stock options and investigate executive stock option prices numerically.
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