Options in agency with binary uncertainty

Óscar Gutiérrez, Vicente Salas-Fumás

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Resum

This paper uses a stylized agency model to evaluate the economic efficiency of options contracts when pay-off uncertainty is bimodal, a situation rather common when projects either 'fail' or 'succeed'. We find that 'options' are strictly preferred to 'stock' (i.e. linear contracts) when output uncertainty is large, i.e. when the spread between the modes of the pay-off distribution is sufficiently high. © 2013 John Wiley & Sons Ltd and The University of Manchester.
Idioma originalAnglès
Pàgines (de-a)218-236
RevistaManchester School
Volum82
Número2
DOIs
Estat de la publicacióPublicada - 1 de març 2014

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