Executive Stock Option Pricing in China under Stochastic Volatility

Chong, Terence Tai Leung and Ding, Yue and Li, Yong (2015): Executive Stock Option Pricing in China under Stochastic Volatility. Forthcoming in:

Abstract

In this paper, on the basis of stochastic volatility (SV) models, we extend the approach of option pricing for executive stock options (ESOs) under FAS 123. Based on this extension, a sample of Chinese listed companies’ ESOs are priced. We analyze the effect of the some important financial variables on the implementation of ESOs. It is found that in China, firms with higher market risk and larger size are likely to have a higher ESO proportion in their executive incentive plans. The effects of the book-to market ratio, stock price volatility, executive shareholding proportion, and the leverage ratio are also examined.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bayesian analysis; Executive stock options; FAS 123; Option pricing; SV models.
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance

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