Optimizing Long-term Incentive Plans



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Details are provided in Appendix 2.
The Newton-Raphson (or just Newton’s) method is used for finding the (local) maxima of Equation 4 [20]. Newton’s method is a well-know algorithm for finding the local maxima or local minima of functions. We are seeking for for all x close to. Newton’s method requires the computation of the gradient vector and Hessian matrix:

The Taylor expansion of:



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