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Article Dans Une Revue Economic Modelling Année : 2016

Employee stock option-implied risk attitude under Rank-Dependent Expected Utility

Résumé

Probability weighting is one of the cornerstones of decision-making theories accommodating gambling preferences. This paper examines its relevance to explaining employee stock option exercise behavior. We characterized the optimal exercise policy for a representative employee with Rank-Dependent Expected Utility (RDEU) preferences. We find that the RDEU framework leads to improved predictions of empirical exercise patterns. The implications from our findings are twofold: (1) probability weighting implies an increase in stock option cost to shareholders; (2) employee exercise behavior-implied sentiment is affected by the firm's stock market risk and performance.
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Dates et versions

hal-01277108 , version 1 (22-02-2016)

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Hamza Bahaji, Jean-François Casta. Employee stock option-implied risk attitude under Rank-Dependent Expected Utility. Economic Modelling, 2016, Volume 52, Part A, ⟨10.1016/j.econmod.2014.12.041⟩. ⟨hal-01277108⟩
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