Optimal Interaction between Shareholders and Employees on Issuing Employee Stock Options within a Stackelberg Game Framework

Please enable javascript in your browser.

Yousefi Maragheh, Reza | 2015

748 Viewed

Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 47301 (01)
University: Sharif University of Technology
Department: Industrial Engineering
Advisor(s): Modarres Yazdi, Mohammad
Abstract:
This paper investigates the interaction between the beneficiaries of an employee stock option plan within a Stackelberg game framework. The beneficiaries are shareholders and employees. In the proposed model, shareholders, as the leaders of the Stackelberg game, determine the optimal features of employee stock option grants. In response, employees, the followers of the proposed Stackelberg game, maximize their own profits by determining their own effort level by considering that every effort level of employees has an associated cost and expected income for employees. It is assumed that the stock price follow Geometric Brownian Motion process with a known drift rate and volatility. Also, it is assumed that the drift rate is an ascending function of the employees’ chosen effort level. The paper presents an approach for finding the Stackelberg Equilibrium’ Strategies. These strategies include the optimal employee stock option plan for employees in which motivate the employees sufficiently and also, maximize the value of stocks belonging to shareholders. Finally, an example of the model is solved for illuminating purpose
Keywords:
Stackelberg Game ; Geometric Brownian Motion ; Optimum Balancing ; Employee Stock Option ; Stackelberg Equilibrium

No TOC