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A study of the option pricing method in the agency problem between airlines and travel agents

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  • Tsai, Hsien-Tang
  • Lin, Chung-Gee
  • Huang, Leo

Abstract

The option pricing method is used to analyze the agency problem between airlines and travel agencies. An Airline Agency Option Pricing model is employed whereby different ticket price processes, the quantity targets of tickets sold, the correlation between the ticket price and ticket quantity, and various incentive programs affect the agency costs between airlines and travel agencies. It is found that airlines should cautiously design their incentive programs to mitigate the impact caused by the agency problem that could influence the operations of travel-related suppliers.

Suggested Citation

  • Tsai, Hsien-Tang & Lin, Chung-Gee & Huang, Leo, 2004. "A study of the option pricing method in the agency problem between airlines and travel agents," Journal of Air Transport Management, Elsevier, vol. 10(2), pages 151-160.
    • Handle: RePEc:eee:jaitra:v:10:y:2004:i:2:p:151-160
    DOI: 10.1016/j.jairtraman.2003.09.003
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    References listed on IDEAS

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    1. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    2. Alamdari, Fariba, 2002. "Regional development in airlines and travel agents relationship," Journal of Air Transport Management, Elsevier, vol. 8(5), pages 339-348.
    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    4. Editors, 1999. "Policy Forum: Inequality and wealth distribution," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(2), pages 274-274, July.
    5. anonymous, 1999. "1997 Eleventh District HMDA profile," Banking and Community Perspectives, Federal Reserve Bank of Dallas, issue February, pages 1-8.
    6. Boyle, Phelim P., 1977. "Options: A Monte Carlo approach," Journal of Financial Economics, Elsevier, vol. 4(3), pages 323-338, May.
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    Cited by:

    1. Leo Huang & Chung-Gee Lin, 2006. "An Option Pricing Approach for Evaluating the Agency Problem of Jump Risk between Airlines and Travel Agents," Tourism Economics, , vol. 12(3), pages 383-400, September.

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