Should there exist secondary markets for executive stock options?

This paper investigates the potential disadvantages of the secondary markets for executive stock options (ESOs). The benefits of such markets are evident, but they might also have negative effects for shareholders. Executives might, for example, use inside information to time their ESO selling. We investigate two personal motives of managers that can be assumed to affect their optimal selling decision, that is, managers' personal portfolio management issues and the use of inside information. We explore these motives by analyzing unique data from Finland, where there are secondary markets for ESOs. The results of the study support the traditional portfolio diversification hypothesis according to which managers tend to sell their ESOs when holding an ESO is equivalent to holding the underlying stock; that is, in such a case a manager's wealth is closely tied to the stock price of the firm. With respect to the use of inside information the results indicate that ESO selling activity is not related to future stock price behaviour, suggesting that managers do not use inside information to determine the selling time of their ESOs. These results imply that the existence of secondary markets for ESOs does not weaken the usefulness of ESOs as the management compensation, although the benefits of such markets are evident.     

Accounting for Option–based Compensation: The Economic Cost Approach

The intrinsic value approach amortizes over the life of the option, the difference between the stock price on the date of the grant and the exercise price of the option. The fair market value approach amortizes over the life of the option, the market value of stock options on the date of the grant. These approaches do not reflect the changes in the option–based compensation cost after the grant date. This paper proposes an economic cost approach that not only adjusts for the changes in the value of the options during its life but also records the issuance of the stock at fair market value on the exercise date.     

Investment Opportunities and the Relation Between Equity Value and Employees' Bonus

A sample of firms where employee stock options and other long‐term incentives are absent but an annual bonus is required is examined. A positive relation is found between firm equity value and stock bonus but not cash bonus. The positive relation is stronger when the firm has greater investment opportunities. Additionally, the relation is shown to be nonlinear in the sense that the marginal effect of stock bonus on equity value is positive but decreasing (negative) when the stock bonus is below (above) the breakpoint. Overall, the annual stock bonus is valued positively by investors even though it is linked to the firm's contemporaneous but not future performance.     

CATALOG RETAILER IN‐STOCK PERFORMANCE: AN ASSESSMENT OF CUSTOMER SERVICE LEVELS

The purpose of this article is to study the level of “in‐stock” customer service performance being offered in the catalog channel of distribution. The article provides benchmark information for the catalog industry. More importantly, the article serves as one test of the effectiveness of the modern supply chain, where the expectation is for near perfect orders. Customer service levels are studied by using an empirical observation methodology in which catalog retailer's in‐stock performance was measured. Comparisons are made across item type, season, retailer type, and days from catalog receipt. Overall, items were out‐of‐stock during 15.9% of all checkpoints, compared to an 11.8% stock‐out rate in an earlier study of bricks and mortar retailers.     

A MULTINOMIAL APPROXIMATION FOR AMERICAN OPTION PRICES IN LÉVY PROCESS MODELS

This paper gives a tree-based method for pricing American options in models where the stock price follows a general exponential Lévy process. A multinomial model for approximating the stock price process, which can be viewed as generalizing the binomial model of Cox, Ross, and Rubinstein (1979) for geometric Brownian motion, is developed. Under mild conditions, it is proved that the stock price process and the prices of American-type options on the stock, calculated from the multinomial model, converge to the corresponding prices under the continuous time Lévy process model. Explicit illustrations are given for the variance gamma model and the normal inverse Gaussian process when the option is an American put, but the procedure is applicable to a much wider class of derivatives including some path-dependent options. Our approach overcomes some practical difficulties that have previously been encountered when the Lévy process has infinite activity.     

PLANNING MULTIPLE LOCATION INVENTORIES

Supplying customer demand from comparable alternate inventory locations when an item is out of stock at its primary stocking point creates a virtual inventory for that item. The expectation is that if more inventories can be drawn upon, the inventory for an item would be lower, the fill rate would be higher, or both. While generally true that safety stocks will be lower, regular stocks, on the other hand, may rise with such cross filling of demand. In this study, a methodology is developed that balances the cross filling effects on both regular and safety stocks for determining whether an inventoried item should be cross‐filled. An example and guidelines are given to show how the methodology can be simplified and applied in practice.     

Valuation of vulnerable American options with correlated credit risk

This article evaluates vulnerable American options based on the two-point Geske and Johnson method. In accordance with the Martingale approach, we provide analytical pricing formulas for European and multi-exercisable options under risk-neutral measures. Employing Richardson’s extrapolation gets the values of vulnerable American options. To demonstrate the accuracy of our proposed method, we use numerical examples to compare the values of vulnerable American options from our proposed method with the benchmark values from the least-square Monte Carlo simulation method. We also perform sensitivity analyses for vulnerable American options and show how the prices of vulnerable American options vary with the correlation between the underlying assets and the option writer’s assets.      

我国股票市场运行中的政府行为研究

金融证券理论认为投资者行为受市场机制约束,政府的作用在于防止投资者脱离投资理性。但我国股票市场是在政府主导下运行的,政府行为不仅导致市场的波动,而且还可以改变市场运行的方向。政府主导市场的结果是扭曲了投资者行为,加大了市场"泡沫",并为利益集团寻租创造了条件。     

公司治理与会计信息质量控制

简要分析了公司治理结构与会计信息质量的关系,并在借鉴国外公司治理经验的基础上,结合中国企业的实际情况,从公司股权结构、公司治理模式、独立董事制度、股票期权激励约束机制以及绩效评价体系等有关公司治理的五个方面提出了若干建议和设想。     

On a symmetrization of diffusion processes

The latter author, together with collaborators, proposed a numerical scheme to calculate the price of barrier options. The scheme is based on a symmetrization of diffusion processes. The present paper aims to give a basis to the use of the numerical scheme for Heston and SABR-type stochastic volatility models. This will be done by showing a fairly general result on the symmetrization (in multi-dimension/multi-reflections). Further applications (to time-inhomogeneous diffusions/ to time-dependent boundaries/to curved boundaries) are also discussed.