Curriculum vitae

Bahaji Hamza

Professeur associé
DRM

hamza.bahaji0ping@dauphinepong.fr
Tel : 0033610300367
Bureau : 0033178403633

Publications

Articles

Bahaji H., Casta J-F. (2016), Employee stock option-implied risk attitude under Rank-Dependent Expected Utility, Economic Modelling, Volume 52, Part A, p. 144–154

Probability weighting is one of the cornerstones of decision-making theories accommodating gambling preferences. This paper examines its relevance to explaining employee stock option exercise behavior. We characterized the optimal exercise policy for a representative employee with Rank-Dependent Expected Utility (RDEU) preferences. We find that the RDEU framework leads to improved predictions of empirical exercise patterns. The implications from our findings are twofold: (1) probability weighting implies an increase in stock option cost to shareholders; (2) employee exercise behavior-implied sentiment is affected by the firm's stock market risk and performance.

Bahaji H. (2014), Equity portfolio insurance against a benchmark: Setting, replication and optimality, Economic Modelling, 40, p. 382–391

This paper undertakes the issue of portfolio insurance from the perspective of a risk-averse agent requiring his financial wealth to grow at a floored rate in excess of an equity benchmark. The suggested solution is a generalization of the CPPI approach within a two-equity asset framework. The paper examines some features of this extension related to its dynamic, its relative risk-reward profile and its static replication. It focuses more specifically on the optimal design of this portfolio strategy in the sense of consumption-investment decision making.

Bahaji H. (2011), Incentives from stock option grants: a behavioral approach, Review of Accounting and Finance, 10, 3, p. 200 - 227

This paper examines the incentives from stock options for loss-averse employees subject to probability weighting. Employing the certainty equivalence principle, I built on insights from Cumulative Prospect Theory (CPT) to derive a continuous time model to value options from the perspective of a representative employee. Consistent with a growing body of empirical and experimental studies (Lambert and Larcker, 2001; Hodge et al., 2006), the model predicts that the employee may overestimate the value of his options in-excess of their risk-neutral value. This is nevertheless in stark contrast with a common finding of standard models based on the Expected Utility Theory (EUT) framework that options value to a risk-averse undiversified employee is strictly lower than the value to risk-neutral outside investors. In particular, I proved that loss aversion and probability weighting have countervailing effects on the option subjective value. In addition, for typical setting of preferences parameters around the experimental estimates (Tversky and Kahneman, 1992; Abdellaoui, 2000), and assuming the company is allowed to adjust existing compensation when making new stock option grants, the model predicts that incentives are maximized for strike prices set around the stock price at inception. This finding is consistent with companies' actual compensation practices that standard EUT-based models have difficulties accommodating their existence. The paper also examines the relationship between risk taking incentives and stock options and finds that an executive who is subject to probability weighting may be more prompted than a risk-neutral executive to act in order to increase the firm's assets volatility.

Bahaji H. (2006), La comptabilité de couverture en juste valeur sous IAS 39 : quelles conséquences pour les fonds propres prudentiels dans le secteur bancaire ?, Banque & marchés, 81, p. 6-15

Nous avons essayé, à travers ce travail, de vérifier dans le cadre du modèle de la juste valeur, la compatibilité de la comptabilité de couverture préconisée par la norme IAS 39 aux objectifs de la réglementation prudentielle sur les fonds propres bancaires. Nos conclusions soutiennent que la macrocouverture est l'approche la plus adéquate à l'activité d'intermédiation de la banque commerciale et celle qui correspond le mieux aux objectifs de la réglementation prudentielle.

Through this study we checked within the framework of the fair value model, the consistency between the hedge-accounting recommended by the IAS 39 and the objectives of the capital regulation in the banking industry. We conclude that the macro-hedge is the most appropriate approach given the role of intermediation of commercial banks and that it better meets the objectives of the capital regulation.

Ouvrages

Bahaji H. (2013), Comportement décisionnel et juste valeur des instruments financiers : le cas des stock-options, Sarrebruck, Presses Académiques Francophones, 284 p. p.

Le thème central de cet ouvrage porte sur l'adéquation des représentations théoriques du comportement décisionnel des agents et sur ses implications pour la pertinence des mesures de la juste valeur des instruments financiers. L'ouvrage vise en premier lieu à mettre en perspective le rôle de la composante comportementale dans la construction de modèles d'évaluation robustes. Cette mise en perspective est établie au travers du cas des stock-options. La réflexion menée sur ce cas se décline en trois axes. Le premier traite des déterminants du comportement d'exercice des porteurs de stock-options. Le deuxième axe porte sur la problématique de l'évaluation subjective. Quant au dernier volet, il aborde la question de la représentation des décisions d'exercice dans les modèles d'évaluation des stock-options. Cet ouvrage est destiné aussi bien aux jeunes chercheurs et aux étudiants de l'enseignement supérieur (masters d'économie et de gestion, écoles de commerce, écoles d'ingénieure...) qu'aux praticiens désireux d'approfondir leurs connaissances des problématiques abordées.

Communications

Bahaji H. (2014), Are Employee Stock Option Exercise Decisions Better Explained through the Prospect Theory?, 63rd Annual Meeting of the Midwest Finance Association - MFA 2014 Annual Meeting, Orlando, FL, United States

This research provides an alternative framework for the analysis of employee stock option exercise patterns. It develops a binomial model where the exercise decision obeys to a policy that maximizes the expected utility to a representative employee exhibiting preferences as described by the Cumulative Prospect Theory (CPT). Using a large database on exercise transactions in 12 US public corporations, I examined the performance of the model in predicting actual exercise patterns. Interestingly, the probability weighting coefficients yielded by the model calibration are consistent with those from the experimental literature. Further, the results suggest that the model outperforms the Expected Utility Theory-based model in predicting actual exercise decisions in the sample. These findings convey the main contribution of this paper: the strong ability of the CPT framework to explain employees exercise behavior. It therefore provides rationale for using this framework in order to get more relevant fair value estimates of stock options.

Bahaji H. (2011), Cumulative Prospect Theory, employee exercise behaviour and stock options cost assessment, 29th Spring International Conference of the French Finance Association, Strasbourg, France

This research provides an alternative framework for the valuation of standard employee stock options and for the analysis of exercise behavior patterns. It develops a binomial model where the exercise decision obeys to a policy that maximizes the expected utility to a representative employee exhibiting preferences as described by the Cumulative Prospect Theory (CPT). This model also accounts for exogenous non-market factors that may cause early exercise. Using a large database on stock options exercise transactions in 12 US public corporations, we examined the performance of our model in predicting actual exercise patterns. Interestingly, the model calibrations yield probability weighting coefficient estimates that are consistent with the estimates from the experimental literature. Further, our results suggest that the CPT-based model outperforms the Expected Utility Theory-based model in predicting actual exercise patterns in our sample. These findings convey the main contribution of this paper which is the strong ability of the CPT framework to explain the employees exercise behavior. It therefore provides rationale for using this framework in order to get more accurate fair value estimates of employee stock options contracts.

Bahaji H. (2011), Employee Stock Options Incentive Effects: A CPT-Based Model, 8th International Conference on Applied Financial Economics, Samos, Grèce

This paper examines the incentives from stock options for loss-averse employees subject to probability weighting. Employing the certainty equivalence principle, I built on insights from Cumulative Prospect Theory (CPT) to derive a continuous time model to value options from the perspective of a representative employee. Consistent with a growing body of empirical and experimental studies, the model predicts that the employee may overestimate the value of his options in-excess of their risk-neutral value. This is nevertheless in stark contrast with a common finding of standard models based on the Expected Utility Theory (EUT) framework that options value to a riskaverse undiversified employee is strictly lower than the value to risk-neutral outside investors. In particular, I proved that loss aversion and probability weighting have countervailing effects on the option subjective value. In addition, for typical setting of preferences parameters around the experimental estimates, and assuming the company is allowed to adjust existing compensation when making new stock option grants, the model predicts that incentives are maximized for strike prices set around the stock price at inception. This finding is consistent with companies' actual compensation practices that standard EUT-based models have difficulties accommodating their existence.

Bahaji H. (2011), Incentives from stock option grants: a behavioral approach, 28ème conférence internationale de l'Association Française de Finance, Montpellier, France

This paper examines the incentives from stock options for loss-averse employees subject to probability weighting. Employing the certainty equivalence principle, I built on insights from Cumulative Prospect Theory (CPT) to derive a continuous time model to value options from the perspective of a representative employee. Consistent with a growing body of empirical and experimental studies (Lambert and Larcker, 2001; Hodge et al., 2006), the model predicts that the employee may overestimate the value of his options in-excess of their risk-neutral value. This is nevertheless in stark contrast with a common finding of standard models based on the Expected Utility Theory (EUT) framework that options value to a risk-averse undiversified employee is strictly lower than the value to risk-neutral outside investors. In particular, I proved that loss aversion and probability weighting have countervailing effects on the option subjective value. In addition, for typical setting of preferences parameters around the experimental estimates (Tversky and Kahneman, 1992; Abdellaoui, 2000), and assuming the company is allowed to adjust existing compensation when making new stock option grants, the model predicts that incentives are maximized for strike prices set around the stock price at inception. This finding is consistent with companies' actual compensation practices that standard EUT-based models have difficulties accommodating their existence. The paper also examines the relationship between risk taking incentives and stock options and finds that an executive who is subject to probability weighting may be more prompted than a risk-neutral executive to act in order to increase the firm's assets volatility.

Bahaji H. (2011), Incentives from stock option grants: a behavioral approach, 6th international finance conference IFC6, Hammamet, Tunisie

This paper examines the incentives from stock options for loss-averse employees subject to probability weighting. Employing the certainty equivalence principle, I built on insights from Cumulative Prospect Theory (CPT) to derive a continuous time model to value options from the perspective of a representative employee. Consistent with a growing body of empirical and experimental studies, the model predicts that the employee may overestimate the value of his options in-excess of their risk-neutral value. This is nevertheless in stark contrast with a common finding of standard models based on the Expected Utility Theory (EUT) framework that options value to a risk-averse undiversified employee is strictly lower than the value to risk-neutral outside investors. In particular, I proved that loss aversion and probability weighting have countervailing effects on the option subjective value. In addition, for typical setting of preferences parameters around the experimental estimates, and assuming the company is allowed to adjust existing compensation when making new stock option grants, the model predicts that incentives are maximized for strike prices set around the stock price at inception. This finding is consistent with companies' actual compensation practices that standard EUT-based models have difficulties accommodating their existence. The paper also examines the relationship between risk taking incentives and stock options and finds that an executive who is subject to probability weighting may be more prompted than a risk-neutral executive to act in order to increase the firm's assets volatility.

Bahaji H. (2005), IAS 39 and fair value hedge-accounting : a simulation of the consequences on regulatory capital in banking industry, 26ème Congrès de l'AFC : "Comptabilité et Connaissances", Lille, France

Nous avons essayé à travers ce travail de vérifier dans le cadre du modèle de la juste valeur, la compatibilité de la comptabilité de couverture préconisée par la norme IAS 39 aux objectifs de la réglementation prudentielle sur les fonds propres bancaires. Nos conclusions soutiennent que la macro-couverture est l'approche la plus adéquate à l'activité d'intermédiation de la banque commerciale et celle qui correspond le mieux aux objectifs de la réglementation prudentielle.

Through this study we checked within the framework of the fair value model, the consistency between the hedge-accounting recommended by the IAS 39 and the objectives of the capital regulation in the banking industry. We conclude that the macro-hedge is the most appropriate approach given the role of intermediation of commercial banks and that it better meets the objectives of the capital regulation.

Documents de travail

Bahaji H. (2009), Contribution à l'analyse des déterminants du comportement d'exercice des porteurs de stock options : une étude empirique sur le marché Américain,, Paris, Université Paris-Dauphine, 49 pages

Cet article a pour objectif de contribuer à l'étude des déterminants du comportement des salariés quant à l'exercice de leurs stock options, en mettant en lumière de nouveaux déterminants du comportement d'exercice. Nous avons testé empiriquement trois familles de facteurs à savoir des facteurs économiques, des facteurs psychologiques et des facteurs caractéristiques de l'environnement de la prise de décision. Pour ce faire, nous avons utilisé un échantillon de 52 534 transactions d'exercice de stock options dans 12 multinationales cotées aux Etats Unis. Nos résultats sont cohérents avec les conclusions de la littérature empirique. Ils montrent en plus que l'horizon de détention des stock options est négativement corrélé au risque spécifique de l'entreprise et que le comportement d'exercice des salariés dénote d'une myopie résultant du biais de Comptabilité Mentale. Ces résultats confirment par ailleurs l'existence d'un lien entre le comportement d'exercice et l'enracinement des stock options dans la culture sectorielle de l'entreprise. Enfin, notre étude révèle que ce comportement est hétérogène dans le temps et d'une entreprise à l'autre.

This paper aims to contribute to previous research on stock-option holders exercise behavior. It gives rise to new factors affecting behavior of stock-option holders. We used private data on 52 534 exercise transactions within 12 US listed companies. Our results are consistent with the empirical literature findings in that they show empirical evidence on underlying economic and psychological factors affecting exercise behavior. More pecifically, we found that exercise is negatively linked to firm-specific risk. In addition, we document that exercise behavior is influenced by the stock-option anchorage in the industry culture of the firm. Moreover, exercise displays myopic behavior denoting mental accounting bias. Finally, it turns out that exercise behavior is heterogeneous over time and firms.

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