Optimizing Long-term Incentive Plans



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attains its optimized value when solves the linear equation:

.

We can distinguish the following steps in finding the maximum of Equation 47:



  1. Give the start value.

  2. . If, then stop.

  3. Choose the step size

  4. Set, and k=k+1. Go to step 1


[***Classified***]
The Lagrange multiplier method is used to find extreme values of a function whose domain is restricted and lies within a particular subset of the domain. The Lagrange multiplier method [9]:

Such that

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