The role of options in the resolution of agency problems: a comment

Article Abstract:

The role of options in the resolution of agency problems is examined. Contrary to earlier research findings, options cannot eliminate excessive perquisite consumption by a firm. Unless the firm's outside financing can be provided by risk-free debt, outside contributors have a residual claim on the net income of the firm. Because outsiders share in the costs of increased perquisite consumption, a negative externality is created that makes excessive perquisite consumption inevitable.

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Stock volatility and the levels of the basis and open interest in futures contracts

Article Abstract:

This article tests a theoretical model of the basis and open interest of stock index futures. The model is based on the differences between stock and futures in terms of investors' ability to customize stock portfolios and liquidity. Empirical evidence confirms the model's prediction that increased volatility decreases the basis and increases open interest. (Reprinted by permission of the publisher.)

Futures, Stock index futures

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The role of options in the resolution of agency problems: a reply

Article Abstract:

Securities packages that contain options can be used to resolve agency problems between the outside and inside contributors to a firm. The combined put-call strategy allows for the coexistence of executive stock options and convertible debt.

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