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Hurdle rate : executive stock options

Cheung, Joe, Corrado, Charles, Chay, J. B. and Jung, Do-Sub 2006, Hurdle rate : executive stock options, Australian journal of management, vol. 31, no. 1, pp. 29-40.

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Title Hurdle rate : executive stock options
Author(s) Cheung, Joe
Corrado, Charles
Chay, J. B.
Jung, Do-Sub
Journal name Australian journal of management
Volume number 31
Issue number 1
Start page 29
End page 40
Publisher Sage
Place of publication Thousand Oaks, Calif.
Publication date 2006-06
ISSN 0312-8962
1327-2020
Keyword(s) executive stock options
Monte Carlo methods
Summary Executive stock options with a rising strike price are a recent innovation in executive compensation in Australia and New Zealand. These options combine a dividend protection feature and a strike price that increases at a hurdle rate set with reference to a cost of capital estimate. With a constant dividend yield, the strike price becomes a path-dependent function of the stock price and exact analytic valuation becomes intractable. However, path-dependent American options can be valued using a Monte Carlo approach proposed in Longstaff and Schwartz (2001). We examine procedures for valuing these options and compare them with Black and Scholes (1973) and Merton (1973) formula valuations.
Language eng
Field of Research 150299 Banking, Finance and Investment not elsewhere classified
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2006, Australian Graduate School Of Management
Persistent URL http://hdl.handle.net/10536/DRO/DU:30019585

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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Created: Thu, 17 Sep 2009, 12:20:04 EST by Liz Hau

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