Valuing the option to purchase an asset at a proportional discount: A correction

Javier Navas

The Quarterly Review of Economics and Finance, 2009, vol. 49, issue 2, 720-724

Abstract: Gu [Gu, Y. A. (2002). Valuing the option to purchase an asset at a proportional discount. The Journal of Financial Research, 25 (1), 99-109] introduces proportional-strike options to study a residential real estate program in China. Under this program, a state employee can buy her house at a fraction of the market price. The employee can also qualify for a subsidized mortgage. Given that the homeowner has the option, but not the obligation, of taking the subsidy, we show that the solution of the housing problem derived by Gu can be wrong. We provide a numerical example to illustrate the point.

Keywords: Option; pricing; Proportional-strike; options; Employee; compensation; package (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062-9769(07)00096-8
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:49:y:2009:i:2:p:720-724

Access Statistics for this article

The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty

More articles in The Quarterly Review of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().