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Valuing the Option to Purchase an Asset at a Proportional Discount

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  • Anthony Yanxiang Gu

Abstract

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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  • Anthony Yanxiang Gu, 2002. "Valuing the Option to Purchase an Asset at a Proportional Discount," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(1), pages 99-109, March.
    • Handle: RePEc:bla:jfnres:v:25:y:2002:i:1:p:99-109
    DOI: 10.1111/1475-6803.00006
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    Cited by:

    1. Anthony Yanxiang Gu & Joseph W. Trefzger, 2003. "Mortgage Payment as a Portion of Income: A Better Solution," International Real Estate Review, Global Social Science Institute, vol. 6(1), pages 121-135.
    2. Navas, Javier F., 2009. "Valuing the option to purchase an asset at a proportional discount: A correction," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 720-724, May.
    3. Lloyd Blenman & Steven Clark, 2005. "Options with Constant Underlying Elasticity in Strikes," Review of Derivatives Research, Springer, vol. 8(2), pages 67-83, August.
    4. Jackson J. Tan & Fernando L. Trinidad, 2018. "A real options model for loan portfolios of actively traded Philippine universal banks," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 8(1), pages 1-24, December.

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