2005/11/09 by Matheus R. Grasselli, Grasselli, M. R.
Economics, Econometrics and Finance · #91B16 #91B28 #Capital Investment and Risk Analysis #FOS: Economics and business #FOS: Mathematics #Financial Markets and Investment Strategies #Probability (math.PR) #Statistical Finance (q-fin.ST) #Statistics Theory (math.ST) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.math/0511234
openalex publication_date 2005/11/09 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We propose a discrete time algorithm for the valuation of employee stock options based on exponential indifference prices and taking into account both the possibility of partial exercise of a fraction of the options and the use of a correlated traded asset to hedge part of their risk. We determine the optimal exercise policy under this conditions and present numerical results showing how both effects can significantly change the value of the option for an employee, as well as its cost for the issuing firm.