# Oberseminar Finanz- und Versicherungsmathematik

Prof. Dr. F. Biagini, , Prof. Dr. T. Meyer-Brandis, Prof. Dr. M. Scherer, Prof. Dr. R. Zagst

Prof. Dr. F. Biagini, , Prof. Dr. T. Meyer-Brandis, Prof. Dr. M. Scherer, Prof. Dr. R. Zagst

At LMU Mathematics Institute, Theresienstraße 39-B (Room A 027)

(how to find us).

Date/Time | Speakers | Titles |
---|---|---|

15.05.202314.00-15.30 | Johannes Ruf,London School of Economics | Hedging with linear regressions and neural networks |

Gunter Meissner,University of Hawaii | A unified Market Risk-Liquidity Risk Model | |

12.06.2023 | TBA | |

03.07.202314.00-16.30 | Anna Battauz,Università Bocconi | On the valuation of executive stock options with vesting periods and liquidation penalties |

Gaurav Khemka,The Australian National University | A Simple Lifecycle Strategy that is Near-Optimal and Requires No Rebalancing | |

William Lim,The Australian National University | Optimal Investment under Terminal Wealth Constraints |

We develop a simple and flexible technique to price executive stock options (ESOs) with vesting periods and liquidation penalties. The vesting period implies that the ESO is activated when a designed performance measure triggers a prespecified barrier. The performance measure is usually an accounting figure, such as the ROE or the EBITDA, normally correlated with the stock price. Once the option is activated, the holder has the right to buy the stock whenever she wants during the residual life of the option. The bivariate strutucture of the ESO, whose payoff depends jointly on the performance measure and the stock, makes usual lattice techniques difficult to apply. We first reduce the ESO to a compound forward-starting American call option on the stock. We then show how to evaluate the ESO option by means of an intuitive hybrid method that uses simulation to determine the bivariate distribution of the foward-starting date of the option and the corresponding price of the stock, and lattice techniques to retrieve the initial value of the activated call option.

Liquidation penalties are common in ESOs, aiming at lowering the chances of selling the ESOs and the underlying company shares. We show that the presence of even mild liquidation penalties triggers the existence of optimal exercise opportunities for the ESOs that are absent when the option can be fully liquidated.

Joint with M. De Donno and Alessandro Sbuelz