We present a tax motivation for the use of employee stock options (ESO) in compensation schemes, based on the advantageous treatment allowed for a firm hedging positions written on its own securities. In a binomial option framework, we show that a cost saving on the order of 10-15% of...

This paper extends Geske's (1979a) compound European call option pricing model and the Roll (1977), Geske (1979b), and Whaley (1981) (RGW) American call pricing model to the case where the variance of the underlying asset changes deterministically. The theoretical analysis shows that the...

Among numerical methods for valuing derivatives, lattice- based models like the binomial are useful for pricing American options, but have difficulty with path dependent contracts. Monte Carlo simulation is good for path- dependent problems, but has trouble with American early exercise. And for...

In contrast to some recent research, this article finds that regression approach futures hedge ratios are stationary. It shows that a previous study's failure to reject the random walk null hypothesis was due to its small sample size and the overlapping hedge ratio calculation approach's bias...