Review of Managerial Science

, Volume 8, Issue 4, pp 437–464 | Cite as

Optimal stock option schemes for managers

  • An Chen
  • Markus Pelger
Original Paper


This paper analyzes which stock option scheme best aligns the interests of a firm’s manager and shareholders when both are risk-averse. We consider granting to the manager a basic fixed salary and one of the following four options: European, Parisian, Asian and American options. Choosing the strike of the options optimally, the shareholders can mostly implement a first best solution with all payoff schemes. The American option scheme best aligns the interests of the manager and the shareholders in the most common case in which the strike price equals the grant-date fair market value.


Different executive stock options Asian, American and Parisian options Welfare analysis 

JEL Classification

G12 G13 G32 


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Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Netspar and Faculty of Mathematics and EconomicsUniversity of UlmUlmGermany
  2. 2.Department of EconomicsUniversity of California, BerkeleyBerkeleyUSA

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