Study About The Stock Option Evaluation With Consideration Of The Risk-aversion And Wealth-separation Effect

In order to allow stock options to achieve the objective of reducing agency costs, the need for senior managers of wealth or changes in salary and stock prices are closely related to the traditional theory of options to Delta options to measure the price sensitivity;the Awarded executives stock options,based on(1) senior managers often hold a certain proportion of company stock,and in short-term stocks can not be sold to avoid risks,(2) takes the freeze period before the implementation of this Rights due to restrictions,will make senior managers in general unable to be like the holders of warrants who can be distributed among portfolio investors,so it can't be applied to the traditional Black-Scholes of the Delta stock options to measure the price sensitivity.This paper to consider the risks Offensive extent,the wealth effect of scattered about when determining the amount of(Certainty Equivalent) to represent high-level managers have the right to the evaluation,and the Black-Scholes value of the burden of cost on behalf of the company,through observation of the value of these two Gap can be found for the higher degree of risk aversion,the dispersion effect was given to the poor,the gap between these two values is,the commitment implied by the higher cost of unnecessary,the stock options so they are likely to lose its established The incentive effect.In addition,by identifying the risks that can be greatly neutral about the stock options when determining the amount of price sensitivity of the strike price,we can further deduce that the risk aversion was awarded in a reasonable price range of performance,setting Shenzhen Development as an example,for the risk neutral senior managers,performance price is between 480 percent to 490 percent to the market price on the day granted can determine about when the amount of price sensitivity to achieve maximum value.This result of the use of risk aversion leads to a conclusion that under the situation that high-level managers will make decisions beneficial to the company,the strike price can not be higher than the above-mentioned market price,hoping to provide a reference on how to decide the implementation price of stock options when company setting performance option plan.Finally about the calculation on the proper value of stock option,with the discussion about the risk-aversion and wealth-detration's effect on the implementation behavior,the common phenomena of early implementation of stock option is concluded in this paper's assessment model by the use of Utility-Max Binomial Model.By comparison between with and without frozen-period,we can find that the existence of frozen-period,the high-level managers will implement the stock earlier in order to avoid risk-aversion and wealth-distraction,thus the time value of the option loses.