Executive Stock Option Pricing and Incentives: Evidence from Asian Option Based on Volatility Estimated by SV-GED Model

This paper develops an executive Asian stock option pricing model based on the volatility estimated by SV-GED model, considering both the features of the volatility of stock return and the abnormal fluctuation of stock price at the expiration date, estimates the parameters of SV-GED model using Markov chain Monte Carlo method, based on Chinese financial index, and compares the value and incentives of executive stock option calculated by the Asian option pricing model based on the volatility estimated by SV-GED model and Black-Scholes stock option model. It shows that SV-GED model has greater veracity in describing the volatility of stock returns; and the value and incentives of the executive stock option evaluated by Asian option pricing model under SV-GED model are larger than those calculated by Black-Scholes stock option model, and the divergence between the two values estimated by two models positively relates to the depth in the money of the option.