Asset sales when resale price is uncertain

Shumei Gao; Jihe Song; Zhengying Luo

Asset sales when resale price is uncertain

Shumei Gao^*, Jihe Song, Zhengying Luo

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract

This paper develops an asset sale model where resale price follows a geometric Brownian motion. It derives a valuation formula for the value of the resale option and obtains the optimal option exercise rule. In addition, analytic measures of the probability of the option exercise are presented and some comparative static results are discussed. The model is shown to have applications to voluntary liquidations and mark-up pricing in mergers and acquisitions. It also throws light on option exercise behavior in real option models.

Original language	English
Pages (from-to)	54-59
Number of pages	6
Journal	Investment Management and Financial Innovations
Volume	11
Issue number	4
Publication status	Published - 1 Jan 2014

Keywords

Asset sales
First passage time
Real options

Cite this

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title = "Asset sales when resale price is uncertain",

abstract = "This paper develops an asset sale model where resale price follows a geometric Brownian motion. It derives a valuation formula for the value of the resale option and obtains the optimal option exercise rule. In addition, analytic measures of the probability of the option exercise are presented and some comparative static results are discussed. The model is shown to have applications to voluntary liquidations and mark-up pricing in mergers and acquisitions. It also throws light on option exercise behavior in real option models.",

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AU - Song, Jihe

AU - Luo, Zhengying

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N2 - This paper develops an asset sale model where resale price follows a geometric Brownian motion. It derives a valuation formula for the value of the resale option and obtains the optimal option exercise rule. In addition, analytic measures of the probability of the option exercise are presented and some comparative static results are discussed. The model is shown to have applications to voluntary liquidations and mark-up pricing in mergers and acquisitions. It also throws light on option exercise behavior in real option models.

AB - This paper develops an asset sale model where resale price follows a geometric Brownian motion. It derives a valuation formula for the value of the resale option and obtains the optimal option exercise rule. In addition, analytic measures of the probability of the option exercise are presented and some comparative static results are discussed. The model is shown to have applications to voluntary liquidations and mark-up pricing in mergers and acquisitions. It also throws light on option exercise behavior in real option models.

KW - Asset sales

KW - First passage time

KW - Real options

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M3 - Article

SN - 1810-4967

VL - 11

SP - 54

EP - 59

JO - Investment Management and Financial Innovations

JF - Investment Management and Financial Innovations

IS - 4

ER -

Asset sales when resale price is uncertain

Abstract

Keywords

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