- Joined
- 11/16/09
- Messages
- 13
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- 11
Hi Seniors:
I'm trying to get an idea of how to price a particular incentive plan and still can't figure out.
So the plan holder at inception pays down 10% of a loan to purchase say 1000 stocks (if a stock is $10, you pay $1), and the stocks pay monthly dividend of 0.1 per share, in the first 10 years, all the dividend (the plan holder will get the dividend) are forced to be repaid for the loan. After 10 years, you don't have to use all the dividend to repay the loan, just the interest need to be repaid. Plan last for 30 years, and any time you can choose to prepay all outstanding balance of the loan, and get the 1000 shares and exercise, or you could just walk away at the end of 30 years and loose the 10% down payment.
I don't know how exactly to price the plan after 10 years. First 10 years I can treat it like an american option with decreasing strikes (since the loan is being repaid, and all you owe is the loan outstanding)
But after 10 years, you start to get the dividends, and what would be the optimal strategy to determine early exercise at each time point, assuming I'm using tree construction.
Many many thanks for any advice. Thanks.
I'm trying to get an idea of how to price a particular incentive plan and still can't figure out.
So the plan holder at inception pays down 10% of a loan to purchase say 1000 stocks (if a stock is $10, you pay $1), and the stocks pay monthly dividend of 0.1 per share, in the first 10 years, all the dividend (the plan holder will get the dividend) are forced to be repaid for the loan. After 10 years, you don't have to use all the dividend to repay the loan, just the interest need to be repaid. Plan last for 30 years, and any time you can choose to prepay all outstanding balance of the loan, and get the 1000 shares and exercise, or you could just walk away at the end of 30 years and loose the 10% down payment.
I don't know how exactly to price the plan after 10 years. First 10 years I can treat it like an american option with decreasing strikes (since the loan is being repaid, and all you owe is the loan outstanding)
But after 10 years, you start to get the dividends, and what would be the optimal strategy to determine early exercise at each time point, assuming I'm using tree construction.
Many many thanks for any advice. Thanks.