Study On Option Pricing Model And Its Application In Executive Incentive

Since 1980s, financial derivatives have been widely developed in international finance. The creation and transaction of financial derivatives has been the main part of the international financial innovations. Options have important economic functions, which can elude market risk, increase market fluidity decrease transaction costs, and improve transaction efficiency. Option pricing is very important, because every thing can use it when the thing includes contingent, and it can also to help to solve the problem between the owner and the executive.The introduction Black-Scholes models still assumed, namely the introduction of modern process (Wiener Process, also called Brownian Motion) to save the stock yield random fluctuations, weak markets and the effectiveness of the use of consistent share of the techniques ((Markov Property) to describe the stock price change random process, the use of risk-neutral pricing theory through the analysis of the nature of asset price process martingale, established European style to the value of stock options with mathematical models. Using equivalence martingale probability measure given permission to be installed once and twice with the European style options pricing formula, and focus on exploring the options pricing technically allowed to be loaded with a European-style options for the manager incentive options with the standard incentive comparative analysis. The results: in the same parameters conditions, the value of reload options than the standard options, the options in the same cost, the incentive to re-installed options than the standard options, the manager incentive rate fluctuations in different interval different. When the stock price volatility larger (this paper volatility rate is greater than 0.3), options to be installed over standard options, and when less than 0.3 sigma rate fluctuations, the standard options are preferable to reload options, interest rate increases on the dividend with options to reduce the value of less than the standard options. In addition, the American reload option does not have analysis solution. Therefore, the use of the binomial pricing methods also allows many of the answers to the American reload options pricing models.