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The Valuation of Executive Stock Option Using the Integral Representation Method

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Document pages: 17 pages

Abstract: This study derives a closed-form approximatesolution for Bermudan reset executive stock options with cash dividends. Thecomplicated payoff characteristic of this exotic option is caused by itsparticular stylistic features, including the reset mechanism, cash dividends,early exercises, and increasing volatilities. Using the integral representationmethod, a closed-form approximate solution was successfully derived. Moreover,this study discusses how specific critical factors affect executive stockoption values and arrives at some interesting results by way of a numericalcalibration.

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