Valuing the Option to Purchase an Asset at a Proportional Discount | Zendy

Gu Anthony Yanxiang | Zendy

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Valuing the Option to Purchase an Asset at a Proportional Discount

Author(s) -

Gu Anthony Yanxiang

Publication year - 2002

Publication title -

journal of financial research

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.319

H-Index - 49

eISSN - 1475-6803

pISSN - 0270-2592

DOI - 10.1111/1475-6803.00006

Subject(s) - asian option , asset (computer security) , real estate , economics , call option , value (mathematics) , dividend , put option , discounting , valuation of options , actuarial science , financial economics , business , microeconomics , finance , computer science , computer security , machine learning

I analyze the value of a nonstandard call option that allows the holder to purchase an underlying asset at a discount proportional to the asset's market price. Several applications for this type of option exist, including its use in employee compensation contracts. I derive the value of this option for a dividend‐paying asset and for an option whose exercise price reflects a time‐varying discount factor. The derived value incorporates the optimal time at which the option should be exercised. One application of this option relates to a residential real estate program in China.

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