Managerial responses to incentives : control of firm risk, derivative pricing implications, and outside wealth management

Hodder, James E.; Jackwerth, Jens Carsten

Managerial responses to incentives : control of firm risk, derivative pricing implications, and outside wealth management

Files

Hodder_190986.pdf(2.25 MB)

Date

2011

Authors

Hodder, James E.

Jackwerth, Jens Carsten

Publication type

Journal article

Published in

Journal of Banking & Finance ; 35 (2011), 6. - pp. 1507-1518. - ISSN 0378-4266. - eISSN 1872-6372

Abstract

We model a firm’s value process controlled by a manager maximizing expected utility from restricted shares and employee stock options. The manager also controls allocation of his outside wealth, which allows partially hedging of his exposure to firm risk. Managerial control increases the expected time to exercise for his employee stock options. It also reduces the gap between his certainty equivalent and the firm’s Fair Value for his compensation, but that gap remains substantial. Managerial control also causes traded options to exhibit an implied volatility smile. With costly control the same basic patterns remain, but the manager’s risk-taking is dampened.

Subject (DDC)

330 Economics

Keywords

Optimal risk-taking,managerial control,derivatives

Cite This

ISO 690

HODDER, James E., Jens Carsten JACKWERTH, 2011. Managerial responses to incentives : control of firm risk, derivative pricing implications, and outside wealth management. In: Journal of Banking & Finance. 35(6), pp. 1507-1518. ISSN 0378-4266. eISSN 1872-6372. Available under: doi: 10.1016/j.jbankfin.2010.10.032

BibTex

@article{Hodder2011Manag-19098,
  year={2011},
  doi={10.1016/j.jbankfin.2010.10.032},
  title={Managerial responses to incentives : control of firm risk, derivative pricing implications, and outside wealth management},
  number={6},
  volume={35},
  issn={0378-4266},
  journal={Journal of Banking & Finance},
  pages={1507--1518},
  author={Hodder, James E. and Jackwerth, Jens Carsten}
}

RDF

<rdf:RDF
    xmlns:dcterms="http://purl.org/dc/terms/"
    xmlns:dc="http://purl.org/dc/elements/1.1/"
    xmlns:rdf="http://www.w3.org/1999/02/22-rdf-syntax-ns#"
    xmlns:bibo="http://purl.org/ontology/bibo/"
    xmlns:dspace="http://digital-repositories.org/ontologies/dspace/0.1.0#"
    xmlns:foaf="http://xmlns.com/foaf/0.1/"
    xmlns:void="http://rdfs.org/ns/void#"
    xmlns:xsd="http://www.w3.org/2001/XMLSchema#" > 
  <rdf:Description rdf:about="https://kops.uni-konstanz.de/server/rdf/resource/123456789/19098">
    <dcterms:available rdf:datatype="http://www.w3.org/2001/XMLSchema#dateTime">2012-05-07T07:27:06Z</dcterms:available>
    <void:sparqlEndpoint rdf:resource="http://localhost/fuseki/dspace/sparql"/>
    <dc:rights>terms-of-use</dc:rights>
    <dc:creator>Hodder, James E.</dc:creator>
    <dcterms:hasPart rdf:resource="https://kops.uni-konstanz.de/bitstream/123456789/19098/2/Hodder_190986.pdf"/>
    <dcterms:bibliographicCitation>Journal of Banking &amp; Finance ; 35 (2011), 6. - S. 1507-1518</dcterms:bibliographicCitation>
    <dc:language>eng</dc:language>
    <dcterms:title>Managerial responses to incentives : control of firm risk, derivative pricing implications, and outside wealth management</dcterms:title>
    <dc:creator>Jackwerth, Jens Carsten</dc:creator>
    <dcterms:abstract xml:lang="eng">We model a firm’s value process controlled by a manager maximizing expected utility from restricted shares and employee stock options. The manager also controls allocation of his outside wealth, which allows partially hedging of his exposure to firm risk. Managerial control increases the expected time to exercise for his employee stock options. It also reduces the gap between his certainty equivalent and the firm’s Fair Value for his compensation, but that gap remains substantial. Managerial control also causes traded options to exhibit an implied volatility smile. With costly control the same basic patterns remain, but the manager’s risk-taking is dampened.</dcterms:abstract>
    <dcterms:isPartOf rdf:resource="https://kops.uni-konstanz.de/server/rdf/resource/123456789/46"/>
    <dc:contributor>Hodder, James E.</dc:contributor>
    <dspace:isPartOfCollection rdf:resource="https://kops.uni-konstanz.de/server/rdf/resource/123456789/46"/>
    <bibo:uri rdf:resource="http://kops.uni-konstanz.de/handle/123456789/19098"/>
    <dspace:hasBitstream rdf:resource="https://kops.uni-konstanz.de/bitstream/123456789/19098/2/Hodder_190986.pdf"/>
    <dcterms:issued>2011</dcterms:issued>
    <dc:contributor>Jackwerth, Jens Carsten</dc:contributor>
    <dcterms:rights rdf:resource="https://rightsstatements.org/page/InC/1.0/"/>
    <foaf:homepage rdf:resource="http://localhost:8080/"/>
    <dc:date rdf:datatype="http://www.w3.org/2001/XMLSchema#dateTime">2012-05-07T07:27:06Z</dc:date>
  </rdf:Description>
</rdf:RDF>

Bibliography of Konstanz

Yes