The finance literature has shown that option grants can help to screen out low-ability executives. In this paper we develop a framework that allows us to analyze when options are likely to be optimal for this purpose. We consider a dynamic setting with asymmetric information, in which...

We show that a possible explanation for the widespread use of options in compensation contracts might be that they provide a way to screen executives. In particular, we consider the problem of a risk-neutral firm that tries to hire a risk-averse executive. There are several types of executives,...

We consider the problem of a Central Bank that wants the exchange rate to be as close as possible to a given target, and in order to do that uses both the interest rate level and interventions in the foreign exchange market. We model this as a mixed classical-impulse stochastic control problem,...

We introduce a model that captures the main properties that characterize employee stock options (ESO), in particular, the likelihood of early voluntary exercise and the obligation to exercise immediately if the employee leaves the firm, except if this happens before options are vested, in which...

We study the portfolio selection problem of an investor who can optimally exert costly effort for more income. The possibility of generating more income, if necessary, increases the risk-taking appetite of the investor. We find the optimal allocation to the risky security as a proportion of...