Options can induce risk taking for arbitrary preferences

Resumo

It is widely believed that call options induce risk-taking behavior. However, Ross (2004) challenges this intuition by demonstrating the impossibility of inducing managers with arbitrary preferences to always act as if they were less risk averse. If preferences and price distributions are unknown, risk-taking behavior cannot be always induced by an option contract. Here, we prove a new result showing that, with no information about preferences and some knowledge about prices, one can write a call option that makes all managers prefer riskier projects to safer ones. This points out that in order to design options that induce risk taking it is sufficient to have information about price distributions.

Ficha do documento

Tipo

Artigo científico

Ano

2006

Instituição

Springer

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso restrito

DOI

10.1007/s00199-004-0581-6

Identificador

oai:repositorio.fgv.br:10438/23060

Temas

Economia

Palavras-chave

Stochastic dominanceStock optionsRisk-takingCompensationEconomiaRisco (Economia)Volatilidade (Finanças)Ações (Finanças)Opções de compra e venda