Firms compensate management with executive stock option plans to mitigate the agency problem arising from conflicts of interest between shareholders and managers. However, due to the nature of stock options, the value to the option holder increases when the volatility of the underlying stock...

Executive stock option plans have been used by firms to compensate management to mitigate the agency problems arising from conflicts of interest between shareholders and managers. However, due to the nature of stock options, the value to the option holder increases when the volatility of the...