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The Valuation of Contract Deposit and Purchase Price

Author

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  • Chien-Ming Huang

    (Department of Banking and Finance, Tamkang University, New Taipei City 251301, Taiwan)

  • Ta-Cheng Chang

    (Department of International Business, Soochow University, Taipei 100006, Taiwan)

Abstract

This paper evaluates the deposit and purchase pricing of purchase contracts in a risk-neutral framework. First, we determine the fair deposit price of a single-installment purchase contract based on theoretical modeling and numerical analysis. Second, the buyer’s threshold pricing in dual-installment and multi-installment contracts is investigated under the framework of compound options. Lastly, the pricing behavior of deposits and purchases is further analyzed using a simultaneous equations modeling framework.

Suggested Citation

  • Chien-Ming Huang & Ta-Cheng Chang, 2022. "The Valuation of Contract Deposit and Purchase Price," Mathematics, MDPI, vol. 10(23), pages 1-17, November.
    • Handle: RePEc:gam:jmathe:v:10:y:2022:i:23:p:4535-:d:989548
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    References listed on IDEAS

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    1. Larry J. Johnson & Larry E. Wofford, 1987. "On Contracts As Options: Some Evidence From Condominium Developments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(1), pages 739-741, March.
    2. Karl E. Case & Robert J. Shiller, 1988. "The behavior of home buyers in boom and post-boom markets," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 29-46.
    3. Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
    4. Abdullah Yavas & C. Sirmans, 2005. "Real Options: Experimental Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 31(1), pages 27-52, August.
    5. Kau James B. & Keenan Donald C. & Kim Taewon, 1994. "Default Probabilities for Mortgages," Journal of Urban Economics, Elsevier, vol. 35(3), pages 278-296, May.
    6. 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.
    7. James D. Shilling & John D. Benjamin & C. F. Sirmans, 1985. "Contracts as Options: Some Evidence from Condominium Developments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(2), pages 143-152, June.
    8. Adams, A.T. & Booth, P.M. & MacGregor, B.D., 2003. "Lease Terms, Option Pricing and the Financial Characteristics of Property," British Actuarial Journal, Cambridge University Press, vol. 9(3), pages 619-635, August.
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    Cited by:

    1. Lucianna Cananà & Luigi De Cesare & Massimiliano Ferrara, 2022. "Advances in Financial Leasing Mechanism Designs," Mathematics, MDPI, vol. 11(1), pages 1-10, December.

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