Abstract
The problems of Chinese rural drinking water have existed for a long time and are deteriorating. Determining the price of rural drinking water is beneficial for solving these problems to some extent. Therefore, this article makes appropriate study on rural drinking water option and its pricing model. Based on the theories of options and water option, we make description on the connotation of rural drinking water option and its trading principle as well as main entities. In addition, on the basis of traditional Black-Scholes option pricing model and the actual situation of rural drinking water, we construct rural drinking water option pricing model from different aspects. With the guiding price of rural drinking water option, it can realize the optimum allocation of rural drinking water resource on the market.
Highlights
At present, Chinese rural population has attained 650 million, according to the 2011 major macroeconomic data announced by China National Bureau of Statistics on January 17, 2012
We can determine the pricing model of rural drinking water option based on theoretical basis of Black-Scholes pricing model without considering the transaction investor made before the maturity date
Establishing trading patterns of rural drinking water option can bring many advantages, such as perfecting current allocation of rural drinking water resource reasonably and effectively, improving the utilization of rural drinking water, reducing the contradictions brought by the uneven distribution of water resources and enhancing its value in use
Summary
Chinese rural population has attained 650 million, according to the 2011 major macroeconomic data announced by China National Bureau of Statistics on January 17, 2012. Using mature options theories to manage the risk of water market has made it a new research focus With these backgrounds, this article attempts to study Chinese rural drinking water option and its pricing. The underlying asset of the option is the rights of rural drinking water which should be negotiated when signed contract between the two parties, rather than change with the water price in the market. Transaction of rural drinking water option includes many kinds of costs, such as costs of surveys and information collection, costs of option value discovery, costs of signing option contract, costs of prior development of trading rules and costs of subsequent implementation of management, supervision and protection. We can determine the pricing model of rural drinking water option based on theoretical basis of Black-Scholes pricing model without considering the transaction investor made before the maturity date. Make unit of account P t to QS and B t,T to QT , we can deduce the formula
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