| Summary: | 博士 === 國立中央大學 === 財務金融研究所 === 99 === This dissertation contains two essays on the applications of contingent claim approach: the cases of pricing deposit insurance and ESO.
First Essay
Risk-Shifting Behavior at Commercial Banks under Different Deposit Insurance Systems: Further Evidence from U.S. Markets
In this essay, we provide further evidence regarding the effect of deposit insurance on the risk-shifting behavior at commercial banks in the United States. In particular, we compare the risk-shifting behavior of commercial banks before and after adopting the risk-based capital requirements in the U.S. market. To test the risk-shifting behaviors, we propose a new pricing model for the valuation of deposit insurance premium using a barrier option framework. We also estimate the unknown parameters using a maximum likelihood estimation method rather than Ronn and Verma’s (1986) two-equation approach. We find that the risk-shifting behaviors at commercial banks have reduced significantly but have not disappeared after the adoption of a risk-based deposit insurance system. The risk-shifting behavior at commercial banks still exists, especially for those banks with high risks or high financial distress probabilities. We find that the deposit insurance reform prevents large banks from shifting their risk to the deposit insurers as well.
Second Essay
Pricing Employee Stock Options with Multiple-Exercise Decisions
This essay proposes a model to value the effective cost of employee stock options (ESOs) assuming that the employee may exercise his/her options in multiple future dates. Therefore we first constructed our model considering the dynamic non-option wealth by maximizing the expected time-additive inter-temporal utility. We then implement our model by using the least-squares Monte Carlo technique for valuing ESOs with multiple-exercise features. Our model can avoid computational path-dependent problems encountered in the binomial tree method. There are three main findings from our numerical analysis. First, consistent with literature, we find that the costs of employee stock options to shareholders will increase if the multiple-date exercise is allowable for options with longer time to maturity, smaller risk aversion parameter, and higher stock price volatility. Second, due to the non-option wealth reducing the total risk of employees, we find that the cost of employee stock options to shareholders will increase after taking the non-option wealth into account, especially for options with longer time to maturity. With longer maturity, the cost of options will increase with non-option wealth. Finally, the costs of employee stock options do not monotonously increase with the risk aversion parameter in our two-state-variable model.
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