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An Option Pricing Approach to Asset Sale


Jihe Song


affiliation not provided to SSRN

Shumei Gao


Heriot-Watt University
July 2000

Heriot-Watt University Working Paper No. 2000/1

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.

Number of Pages in PDF File: 20

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

JEL Classification: G31, M40, M46

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Date posted: August 22, 2000  

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: http://ssrn.com/abstract=237368 or http://dx.doi.org/10.2139/ssrn.237368

Contact Information

Jihe Song (Contact Author)
affiliation not provided to SSRN
Shumei Gao
Heriot-Watt University ( email )
Edinburgh EH14 4AS, Scotland
UNITED KINGDOM
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