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The Volatility and Price Sensitivities of Managerial Stock Option Portfolios and Corporate Hedging

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  • John D. Knopf
  • Jouahn Nam
  • John H. Thornton

Abstract

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.

Suggested Citation

  • John D. Knopf & Jouahn Nam & John H. Thornton, 2002. "The Volatility and Price Sensitivities of Managerial Stock Option Portfolios and Corporate Hedging," Journal of Finance, American Finance Association, vol. 57(2), pages 801-813, April.
    • Handle: RePEc:bla:jfinan:v:57:y:2002:i:2:p:801-813
    DOI: 10.1111/1540-6261.00442
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    References listed on IDEAS

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