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Business Finance

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How do the high amounts of executive stock options often granted by high-tech firms complicate the dividend policy decision for these firms?Explain volatility smile for currency options and volatility skew for equity options with possible explanations.

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Question 1Executive option holdings complicate the system by reducing the support challenging when risk opposed directors with huge unspecified holdings of monetary and mortal capital in the company exploit their own efficiency through reducing strong instability. Scholarships have also bad result on shareholder worth when they inspire directors to concentrate on projects with poor net present value but which raise standard value volatility Stock option holdings give double the pay to performance compassion of stock. This is when CEO stock holdings, stayed substituted with the similar ex payment value of stock choices, the pay-to-performance sensitivity for typical boss will double. This will result to high loss in the firm income as a result of accumulated incentives to the high level executives When the present policy of yielding at-the-money options were substituted by an ex payment value neutral policy of granting out-of-the-money, performance sensitivity will rise by a reasonable quantity about 30 percent. The compassion of stock choices is higher on the upside than on the downside. It disturbs the worth of current and also future stock option prizes. Sovereign of how stock prices affect the reassessment of ancient, variations in the stock price shake the value of future option allowances.
Question 2Volatility smiles means implied volatility designs which ascend in valuing financial choices. It relates discovering one single limit that requires to be changed for the Black Scholes formula to suit market prices. For any agreed term...


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