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The Volatility and Price Sensitivities of Managerial Stock Option Portfolios and Corporate Hedging
Author(s) -
Knopf John D.,
Nam Jouahn,
Thornton John H.
Publication year - 2002
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00442
Subject(s) - stock (firearms) , volatility (finance) , non qualified stock option , financial economics , restricted stock , cost price , hedge , business , market maker , stock price , economics , econometrics , stock market , mechanical engineering , paleontology , ecology , horse , series (stratigraphy) , engineering , biology
We use estimates of the Black—Scholes sensitivity of managers' stock option portfolios to stock return volatility and the sensitivity of managers' stock and stock option portfolios to stock price to test the relationship between managers' risk preferences and hedging activities. We find that as the sensitivity of managers' stock and stock option portfolios to stock price increases, firms tend to hedge more. However, as the sensitivity of managers' stock option portfolios to stock return volatility increases, firms tend to hedge less.