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Pricing Rent-to-Own Options with a Barrier Level: Taking Housing Contracts as an Example

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  • Yi-Long Hsiao
  • Chien-Jung Ting

Abstract

How to effectually price a rent-to-own option embedded a barrier level? This question is an important issue in financial market. For the purpose, we use the boundary integral method of PDE to derive a closed-form approximate solution of the rent-to-own option embedded a barrier level, where the tenant has the right to buy a specified rental house during the duration of contract. This study finds several characteristics through a sequence of numerical analyses and provides an available method for pricing rent-to-own options taking housing contracts with a barrier level as an example. This paper is original research in pricing a rent-to-own option using a boundary integral method and provides a reference to financial market about the valuation of a rent-to-own option embedded a barrier level well. Â JEL classification numbers: C02, G13.

Suggested Citation

  • Yi-Long Hsiao & Chien-Jung Ting, 2022. "Pricing Rent-to-Own Options with a Barrier Level: Taking Housing Contracts as an Example," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 12(5), pages 1-3.
    • Handle: RePEc:spt:apfiba:v:12:y:2022:i:5:f:12_5_3
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Rent-to-own option; Boundary integral method; Green’s function.;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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