| Summary: | 博士 === 國立臺灣大學 === 國際企業學研究所 === 92 === It goes without saying that the Black-Scholes pricing formula has enjoyed an excellent reputation both theoretically and practically since introduced in the early 1970s. Even though the pricing formula is neat and user-friendly, such over-simplified assumptions behind it may be the only drawback. From our perspective, the Black-Scholes pricing formula has to be somewhat modified when applied to the reality. We consider different situations in the two parts of the thesis, and provide proper pricing formulas. Taking the option price as given, we further analyze the investment behavior of the investor.
The purpose of the first part is to investigate the effect of ambiguity aversion on the employees’ subjective valuations and exercises of employee stock options. We depict model uncertainty through a set of priors, and introduce the penalty function to a general utility function in order to capture investors’ uncertainty aversion. Based on the value function, we then derive the employee’s subjective value of the stock option. Our model successfully distinguishes and explains the different behaviors of evaluating and exercising stock options of employees at different levels of the same company. Our findings contribute to precise evaluation of stock options for the FASB, to gauge of incentives that stock options really produce, and to tailor-made option grant policies, both theoretically and practically.
A pricing formula for exchange options on nontraded assets in closed form is discussed in the second part of the thesis. Whether it is worth switching one property for another is a regular concern for a real estate investment trust manager. Moreover, company managers are often faced with options to switch production between different locations, depending on variables such as wage, consumption demand, and taxes. The parallel concepts of exchange options aid in explaining a lot of perplexing issues in this field. Although Margrabe (1978) derived a well-known pricing formula out of the Black-Scholes formula for exchange options, it may be inappropriate to adopt Margrabe’s pricing formula to evaluate this kind of exchange option because the underlying assets are often not financial assets, but nontraded assets. Besides the problem of pricing exchange options with nontraded underlying assets, conventional finance literature may encounter great difficulties in addressing portfolio problems and hedging for the nontraded securities. The purpose of the second part is to price exchange options with nontraded underlying assets and to hedge with payoffs from nontraded assets.
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