An Option Pricing Approach to Asset Sale

Heriot-Watt University Working Paper No. 2000/1

20 Pages Posted: 22 Aug 2000

See all articles by Jihe Song

Jihe Song

affiliation not provided to SSRN

Shumei Gao

Heriot-Watt University

Date Written: July 2000

Abstract

This paper presents a model of asset sale under uncertainty and derives an optimal scrapping rule. It shows that under certain conditions an asset should be scrapped when its operating profit first reaches a critical level. A testable equation based on the model is suggested. The model may be applied to voluntary liquidations, plant closures, sell-off, spin-off and the examination of takeover premiums.

Keywords: Asset Sale, Capital Budgeting, Real Options, Scrapping

JEL Classification: G31, M40, M46

Suggested Citation

Song, Jihe and Gao, Shumei, An Option Pricing Approach to Asset Sale (July 2000). Heriot-Watt University Working Paper No. 2000/1, Available at SSRN: https://ssrn.com/abstract=237368 or http://dx.doi.org/10.2139/ssrn.237368

Jihe Song (Contact Author)

affiliation not provided to SSRN

Shumei Gao

Heriot-Watt University ( email )

Riccarton
Edinburgh EH14 4AS, Scotland EH14 1AS
UNITED KINGDOM

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
761
Abstract Views
3,513
Rank
61,163
PlumX Metrics