Study on Option Price Model of the Transaction of Information Commodities

Transcription

1 J. Service Science & Managemen, 009, : doi:10.436/jssm ublished Online December 009 ( Sudy on Opion rice Model of he Transacion of Informaion Commodiies Changping HU, Xianjun QI Cener for Sudies of Informaion Resources, Wuhan Universiy, Wuhan, China. xianjun.qi@gmail.com Received Augus 5, 009; revised Sepember 9, 009; acceped ovember 1, 009. ABSTRACT The opion is viewed as an imporan ool of seing price in accordance wih objecive benefis and acual effeciveness of informaion commodiies, as ensures ha he holder of he opion righ acquires more benefis in he favorable marke and reduces losses in he adverse marke. And he informaion marke, as a kind of ypical monopolisic and compeiive marke, is especially adequae for inroducing he opion heory o se more reasonable price and furher o improve he operaional efficiency of informaion marke. Hence, i is quie necessary o apply he opion heory o he ransacion of informaion commodiies. In his paper, afer analyzing he applicabiliy of he opion heory o he informaion marke and sudying he opion price of informaion commodiies, he auhors pu forward he opion price model of he ransacion, followed by a case sudy o demonsrae he validiy of he model. Keywords: Informaion Commodiies, Marke Mechanism, Opion ricing, Transacion Model 1. Inroducion Wih he developmen of commodiy economy, incomplee marke informaion, which creaes difference value beween he cos and he profi of informaion searching, and which has is special value, gradually evolves ino a form of independen commodiy [1]. And informaion commodiies ineviably promoe he emergence and he developmen of informaion marke []. As he produc of informaion commercializaion, informaion marke is no only an independen and physical commodiy marke, bu also an invisible facor marke included in oher markes [3]. Therefore, in he narrow sense, informaion marke refers o as some places, where people rade informaion commodiies a a cerain period of ime; while in he broad sense, i refers o all he relaionships beween he supply and he demand of informaion commodiies, involving he whole course and he all fields of he circulaion of informaion commodiies, from he producion o he consumpion. Informaion marke, like he maerial marke, could only operae formally wih he complee marke sysems and flexible marke mechanisms, namely, he supply and demand mechanism, he price mechanism, he compeiive mechanism, risk mechanism, managemen mechanism and oher mechanisms [4]. And i is he price mechanism ha serves as he mos effecive way of resources allocaion in he marke economy. The main reason is ha he price, as he mos sensiive signal in he marke, could accuraely and imely reflec he imbalance beween he supply and he demand of informaion commodiies disribued o many differen direcions of uilizaion o maximize he effeciveness. Therefore, pricing is he primary ask in he ransacion of informaion commodiies. Regarding he price of informaion commodiies, here have been several pricing mehods such as muliple pricing [5], bundle pricing, discriminaory pricing, Ramsey pricing and inegraed pricing sraegies ec. [6]. All of hem are classified as e resen Value (V) mehods, based on he radiional pricing heories, neglecing he impac of marke uncerainy on he ransacion of informaion commodiies. Since informaion commodiies have he characerisics of monopoly, exernaliies, public produc properies and a shorer life cycle, informaion asymmery are more common and informaion marke are more uncerain. Thus he above pricing mehods do no always make righ prices idenical wih he real value of informaion commodiies [7]. In he middle of he las cenury, many researchers and managers found ha discouned cash flow mehods, represened by V, led o ineffecive resources allocaion [8]. Shorly aferwards many scholars, like Louis Bachelier, aul Samuelson, Fischer Black, Myron Scholes, Rober Meron and so on, began o seek oher soluions and pu forward several ransacion models under he Copyrigh 009 SciRes

2 Sudy on Opion rice Model of he Transacion of Informaion Commodiies 395 uncerainy condiions, which made a significan conribuion o opion research. Afer analyzing hose models, i is easy o draw he conclusion ha he opion heory had wo obvious advanages in resolving he ransacion of informaion commodiies: he one is ha he opion heory deal wih he uncerainy under he condiion of observing he principles of he classic economics and mahemaics; he anoher is ha he opion mehod, replacing he inaccuracy wih he complexiy, is almos applicable o every marke. Moreover, in he informaion marke, he opion of informaion commodiies can objecively reflec he impac of he uncerainy of informaion marke and he flexibiliy of decision-making on he price and he value of informaion commodiies, by assessing he value of opions, by analyzing he coss and profis of he boh paries and by seing a reasonable price, so as o achieve he opimal allocaion of informaion resources.. The Applicabiliy of he Opion Theory o Informaion Marke.1 The Opion Theory The opion heory had been gradually developed in he long-erm pracice of solving he uncerainy of he price in he fuure marke. Essenially, an opion is also called a opion conrac, which sipulaes he righ of he seller or he buyer o choose o sell or buy a cerain number of underlying asses such as porfolio, financial asses and physical asses a a fixed price wihin a prescribed ime. Thus, he opion is no mere a financial derivaives, bu raher an objecive righ o choose. Obviously, he opion is a ool of ransacion and pricing in he fuure marke [9]. revious sudies suggesed ha he real opion is derived from he financial opion. Is core idea is ha invesors should maximize he value of he projec by means of some marke-based mehods insead of subjecive probabiliy mehods and uiliy funcions when hey deermine he value of invesmen opporuniies and choose he opimal invesmen sraegy. Simply, he real opion is a kind of realisic opion defined by he opion concep. According o differen holders of he righ, opions are divided ino a call opion and a pu opion: he former is he righ ha he opion buyer purchases underlying asses in erms of saed price and quaniy wihin validiy of he opion conrac, and he laer refers o he righ o sell he underlying asses under he same condiions; While according o he difference of exercise ime, opions are divided ino American opion and European opion: he former specifies buyers can exercise opions on or prior o any given rading day, and he laer is jus he opposie. Acually, he buyers of American call opion can flexibly choose he bes ime ha is mos advanageous o hem, o exercise opions according o he marke shif and he acual demand. The mos disincive feaure of he opion is ha an opion grans he exercise righ, raher han he obligaion, o he opion buyer in he form of he conrac. Tha is, opion buyers may make profis from he ransacion when he price of he underlying asse is higher han he exercise price, on he conrary, hey jus avoid more losses (aside from he value of he opion) by giving up heir opion righs. Tha is why he mehod of he opion is specifically suiable for he high-risk and srong flexible marke. Especially, in he marke wih asymmeric informaion, he opion can help o reduce he risk caused by he uncerainies of he supply and he demand, o add he effeciveness of informaion commodiies, and furher o reduce ransacion coss by improving he marke ransacion.. The Opion Feaures of Informaion Commodiies Some expers on he heory of he real opion, like Dixi, mainained ha he irreversibiliy, he uncerainy and he seleciviy of he invesmen were jus heoreic premise of he research on real opions [10]. In addiion, as he main form of informaion resources in he marke economy, informaion commodiies also fulfill he given precondiion: firsly, mos informaion commodiies are echnology-based or experience-based commodiies, requiring consume a majoriy of inangible capial ha is a par of submersion capial, difficul o recover invesed coss; secondly, as invisible values of informaion commodiies, which ofen aach o maerial commodiies, do no direcly creae values, and useful values usually depend on heir own values and on he specific use condiions, informaion marke fill wih many uncerainies ha are associaed wih he price, he quaniy of supply and demand, he qualiy as well as effeciveness and ha reduce he accuracy of assessing he real value of informaion commodiies; hirdly, he producion and he ransacion of informaion commodiies a differen imes may resul in quie differen profis and risks due o he long producion ime, he shor life cycle, and he unpredicable facors in informaion marke. In a word, he opion of informaion commodiies in he informaion marke, an invisible marke, where boh of he ime and he form of he ransacion are exremely flexible, could be regarded as he American opion. The opion holders of informaion commodiies maybe obain more marke opporuniies or reduce less losses by changing he operaing scale, invesing periodically, delaying, giving up he opion, and so on..3 The Funcion of he Opion in Informaion Commodiies Transacion In he informaion marke, various marke mechanisms are regulaing he whole ransacion course and he all economical relaionships o realize marke equilibrium. Copyrigh 009 SciRes

3 396 Sudy on Opion rice Model of he Transacion of Informaion Commodiies According o wesern economics, marke equilibrium refers o ha inerrelaed economic subjecs, who sar from heir maximal welfare, inerac on each oher coninuously o adjus marke parameers unil he whole economic sysem come up o a sable sae. In heory, he above marke equilibrium is a sor of poin equalizaion ha could realize areo Opimaliy. However, in he real informaion marke, he price of informaion commodiies canno auomaically regulae o a balance beween supply and demand, bu o a cerain range deviaing from each oher. Therefore, informaion marke equilibrium is a kind of domain equalizaion, which is no able o fully realize ideal areo Opimaliy. The main reason is ha informaion commodiies have he following hree characerisics of indivisibiliy, exernaliies and uncerainy [11], and he firs wo issues could be solved by pricing wih marginal cos and by separaing he social coss (profis) from individual coss (profis), requiring use opions o solve he hird one o achieve he ransacion in he uncerain informaion marke. I is well known ha he opion promoes he ransacion mainly by divering, avoiding risks and regulaing price. Researches indicaed ha he opion model could simulae opimal informaion sysem [1], and ha he opion mehod could help o solve he problem of venure capial invesmen of informaion echnologies [13]. Ye, in he uncerain informaion marke, he price canno objecively reflec he real value of informaion commodiies. Furhermore, i is difficul for wo paries o reach an agreemen owing o he higher risk and he wider flucuaion margin, which leads low marke efficiency. However, wih an opion graning exercise righ sead of he obligaion, opion holders could ransfer risks o heir counerpars. And his way of ransacion provides a special insurance, namely, reducing losses under he adverse condiion and obaining more profis under he favorable condiion in virue of he opion of informaion commodiies, and is bound o ease he worries of raders, reduce ransacion coss, simplify he ransacion process and furher o promoe he circulaion of informaion commodiies. 3. The Opion rice of Informaion Commodiies The heory of opion price is one mos imporan achievemens of modern finance heory. In 1997, having pu forward he heory of opion price, Myron Scholes, a rofessor of Sanford universiy and Rober C. Meron received obel rize for Economics of he year. And hen he formula of opion price Black-Scholes, which is view as one of successful models of applied mahemaics in social science domain, has been used widely for is simple operaion and relaively accurae resuls [14]. Alhough i was proposed aiming a he European opion a firs, i could be quickly exended ino American opion ha is able o pay he dividend in he opion period [15], and hen: The call opion price is: f V Sd ( 1) Ke d ( ) The pu opion price is: 1 ) (1) f Ke ( d ) S( d () ln( S / K) ( f / ) Where, d1, 1 d d d1, d ( ) e d, d ( 1) and d ( ) respecively sands for he cumulaive disribuion funcion of sandard normal disribuion of d1 and d, whose value may be acquired by inquiring he normal disribuion able; S is he curren price of underlying asses; K is he exercise price of underlying asses; f is he risk-free profi margin, is he profiabiliy of underlying asses. In he informaion marke, however, informaion commodiies are mainly divided ino wo caegories: he firs one, independen of physical producs, could be exchanged in a ransacion wihou ransferring he original physical carriers, such as knowledge and decision; he second one, inegraed wih physical carriers, carries ou a ransacion which ofen accompanies by he exchange of physical commodiies, for example, a book or a CD-ROM. Clearly, for he laer, he real value of informaion commodiies is difficul o separae from in he whole value. Then his paper is aimed a he firs informaion commodiy, which is independen of physical carriers. Moreover, he meaning of each variable of informaion marke is quie differen from hose of general physical marke. For example, he effecive period of call opions of physical commodiies does no ran over he ime of marke ransacion, meanwhile, informaion commodiies are on he oher hand. Alhough hese produced informaion commodiies would be markeed immediaely, heir effeciveness canno accomplish righ now. As hus people do no regard variable prices wihin a shor ime as he foundaion for he decision wheher o purchase informaion commodiies. Insead, hey mainly consider he following wo issues in he long run: how much effeciveness and risks would informaion commodiies bring abou? Could hey achieve expeced profis? ow, if he full ime from purchasing o using is assumed o be an effecive opion period, represened by, accordingly, represens he value flucuaion raio of informaion commodiies (expressed by sandard deviaion of expeced rae of reurn ), S represens he expeced cash value of informaion commodiies, K represens he cash value of informaion commodiies, Copyrigh 009 SciRes

4 Sudy on Opion rice Model of he Transacion of Informaion Commodiies 397 V represens he expeced benefis of informaion commodiies. Evidenly, if V was less han zero or was lower han he expeced, buyers would no purchase he commodiies. 4. The Transacion Model of Opion rice Absoluely, he price is he mos sensiive signal of marke change and correspondingly, he price mechanism is he mos effecive ransacion mechanism in he marke economy. Under he funcion of he opion, he price could objecively reflec he supply and he demand of informaion commodiies, he compeiive siuaion, he managemen performance, as well as he risk index of developmen and uilizaion. And i helps o improve he operaional efficiency of informaion marke and furher o promoe he opimal allocaion of informaion resources. In oher words, he opion devoes o achieve he raional allocaion of informaion commodiies by pricing. However, mos informaion markes serve as seller's marke, in which informaion asymmery is very common, jus for buyers lack of imporan informaion including commodiies, markes and seller's credibiliy. Hence, sellers ofen have a comparaive advanage during he ransacion, which is carried ou mosly based on he price se by hem. In his paper, aking a seller's marke as an example, he auhors consruced he opion price model of he ransacion of informaion commodiies and hen analyzed how he opion opimized he model in order o improve he ransacion in he informaion marke. In addiion, C H is deermined by he wo pars: he expeced addiional benefis (R) and he proporional coefficien of he dividend (L). Thus, R is equal o he sum of addiional economic profis caugh by informaion commodiies of each year. However, informaion commodiies usually represen hemselves in he form of echniques, knowledge, recipes and oher inangible asses, which canno creae economic values direcly, bu enhance produciviy and benefis by improving producion processes. As a resul, i is very hard o assess how much economic values and effeciveness on earh he informaion commodiies brough abou in he shor ime. Therefore, R is jus esimaed value or reference value of he indusry during ransacion. Besides, he inflaion is no negleced, and i is indispensable ha cash flows should be discouned o he presen by a given discoun rae r. Thus, addiional profis received by using he mehod of ne presen value (V), are as follow: b1 b b3( G G0) R WT (3) (1 r) Where, b1 is cos facor, b is he facor of qualiy & performance, b3 is he sales facor, G is he producion capaciy of he buyer afer years, G 0 is he producion capaciy of he buyer before purchasing he informaion commodiy, r is he discoun facor of he currency, W is he profi of per uni of producion afer purchasing and T is he monopoly coefficien of he informaion commodiy. And he proporional coefficien 4.1 The Seller rice of he dividend (L) have o balance he profis of boh sides and depend on he funding of he corresponding In he informaion marke, S is used o sand for he supporing faciliies, noed as C M, namely, he proporional coefficien of he dividend (L) is equal o he raio price se by he seller (a reasonable price, insead of exorbian price). And he seller consider he wo main deerminans of producion coss( C of C : )and he dividend of expeced addiional profis( C H ), where C includes C C L 100% 100% (4) hree pars: he cos of maerial carriers( C1 ), he consumpion of acive labors( C ) and he opporuniy cos In he above formula, C C M Q c M is he applicaion cos of ( C ), namely, C a1c1 a 3 C 3,where,, he buyer, assessed by expers, namely, CM Q c, Q 3 ac a1 a and, whose value is beween 0 and 1, respecively sand for he corresponding weigh of he cos. is he producion of he buyer afer using he informaion a3 commodiies, c is he applicaion cos of he buyer afer They are affeced by some facors like he way of specific ransacion, negoiaion skills, he effeciveness of he proporional coefficien of he dividend (L) and he using he informaion commodiies. And he formula of commodiies and he expeced values of boh paries. seller price S are as follows: C b b b ( G G ) CH L R WT Q c r % (5) 1 (1 ) S C b b b ( G G ) C C H ac a C a C WT (6) ( ) Q c 1 (1 r) 100% Obviously, he upper limi of he seller price: Copyrigh 009 SciRes

5 398 Sudy on Opion rice Model of he Transacion of Informaion Commodiies b1 b b3( G G0) S max ( ac 1 1 ac a3c3 ) WT (1 r) 1 (7) The boom limi of is: ac a C a C, where ough o mee he equaion : S 4. The Transacion rice S S min Smin S Smax For buyers, he lower he ransacion price is, he more profis hey obain. However, heir expeced price can no be lower han he lowes expeced price of he seller, or i canno reach a deal. Meanwhile, buyers se a fuzzy value of expeced price which is generally higher han he boom limi of he seller price provided ha he ransacion is concluded, ha is, he wo paries would soon reach a deal a a ransacion price when he seller price was absoluely propiious o achieve he expeced reurn of he buyer or much lower han he expeced price. everheless, i is rare. Insead, here is a more general siuaion ha he seller price is so high ha he consumer surplus of he buyer is less han he expeced reurn. In his case, wheher o reach a deal or no depends on wheher he consumer surplus of he buyer come up o he expecaion a he lowes price se by he seller. Then represened by leers, i is showed as follows. Subsiue he lowes price of he seller( )ino he formula of he S min opion price o compue he value of, which is no less han he expeced reurn o reach a deal afer he bargain, oherwise, he deal is failed. V f f e S V ( /) f ( /) In fac, i is very complicaed o inroduce he model of Black-Scholes o compue comprehensive evaluaion of he opion, an absolue value of quaniies. To simplify he calculaion, i is advisable o ransform he above formula ino he expression of relaive opions. Furhermore, he difference beween he presen value of fuure profis (S) and furher ou-of-pocke (K) deermines wheher he buyer purchases he cerain informaion commodiies or no. And hen we can compue he opion price (V) of he criical poin (i.e. S=K), hen he raio of he price (V) and he value of profis (S) is jus he impac facor of he opion price, noed as. ow, subsiuing he equaion of S=K o formula 1, we can see: The radiional mehods of evaluaion regarded cosincome raio as he relaive value wihou regard o he opion. When opions ha exis objecively are considered, he impac of he opion price on he value of informaion commodiies is expressed as S K, and hen. (8) he relaive evaluaion value of he real opions ( g ) similarly is esimaed as follows: S S g 1 K K (9) I's crucial, herefore, o compare he value of g wih 1, ha is, if g >1, he buyer would purchase he commodiy; oherwise, he buyer would give up he ransacion when g <1. 5. Case Sudy Here, we assume ha some company (A) has developed he new generaion of ER, whose coss of maerial carrier are $50 million, he coss of acive labor are $50 million, he opporuniy coss are $300 million, and which could add a profi of $100million per year wihin he service life of 10 years, when he monopoly coefficien equal o 0.. In he meanime, anoher company (B) ha would purchase he ER of A, needs o cos $500 million o allocae he corresponding equipmens and saff. A his ime, he flucuaion raio of he value of he ER sysem is 30% ( =30%), and risk free rae ( f ) is 8% ( f 8% ). For company A: he cos of producion C = =600 (million dollars); he rae of profi commission = 600 / ( ) = 0.545; he expeced profi is 1000 million dollars; he expeced profi commission C H = ( ) =174.4 (million dollars); Then reasonable price of A is S = =774.4 (million dollars), and he floor price acceped by A is $600 million while is highes price should be =1600 million dollars, i.e., he range of ransacion price meeing he requiremens of 600< 1600 (million dollars). Wha if we use he mehod of DCF (Discouned Cash Flow) o compue hese parameers? Well, he minimum amoun company B need o pay is =1100 million dollars, and correspondingly, is profi is =1000 million dollars. Clearly, in ha case, B would no purchase he ER sysem since income is less han he expense. 6. Conclusions The real opion is no so much a ool as a way of hinking, which is grealy able o provide people wih a scienific, dynamic and sraegic analysis framework, and which is appropriae no only for evaluaing he value and he price bu for arranging opimal acions o avoid risks. Absoluely, i is he opion wih above excellen feaures ha has ousanding advanages in he informaion mar- Copyrigh 009 SciRes

6 Sudy on Opion rice Model of he Transacion of Informaion Commodiies 399 ke, where he opion can effecively promoe reasonable disribuion of informaion commodiies in he aspecs of he ime, he space and he ype in order o maximize heir effeciveness. Therefore, from he sandpoin of economic profis, he opion mainly regulaes he benefis of marke players o opimize he price model in he virue of he price mechanism. In a word, his paper proposed ha informaion commodiies had he characerisics of he opion, ha opions played an imporan role in commodiies ransacion, and ha he classic model of he opion price was applied o se he opion price of informaion commodiies. Addiionally, aking for an example of informaion commodiies, we analyzed how he call opion exered is influence o buyers decision-making, as is of imporance in guiding he aciviies of informaion economy. However, here are several problems o be furher elaboraed in he fuure, for insance, combining he opion heory wih he game heory o invesigae some new laws and feaures of informaion commodiies in he informaion marke and furher o improve he operaional efficiency. 7. Acknowledgmens This paper is suppored by he major projec of aional Social Science Foundaion of China under Grans 06JD003. REFERECES [1] H. Q. Ma and C. Zong, Analysis on he implemenaion efficiency problems and counermeasures abou he policy and regulaions for he nework informaion resources consrucion and locaion, Library and Informaion, Vol. 10, pp , 006. [] X. J. Zha, The allocaion of resources and sharing of informaion, Wuhan Universiy ress, Wuhan, 008. [3] F. C. Ma, G. Li, and X. J. Zha, Informaion resources managemen, Wuhan Universiy ress, Wuhan, 001. [4] W. Y. Xu and L.. Li, Sudy on informaion resources effecive allocaion under he condiions of marke economy, Journal of Informaion, Vol. 11, pp , 005. [5] L. Huan and Y. Jiang, Research on he Muli-prices ricing Model of Informaion roduc, Finance and Economics, Vol. 4, pp , 00. [6] F. C. Ma and X. G. Wang, ricing sraegies and mehods of informaion commodiies, Informaion Sudies: Theory & Applicaion, Vol. 3, pp , 003. [7] F. Ancarani and V. Shankar, rice levels and price dispersion on he inerne: A comparison of pure play inerne, bricks-and-morar, and bricks-and-clicks reailers, Business Research Cener Working aper, 00. [8] L. Trigeorgis, Real opions: Managerial flexibiliy and sraegy in resource allocaion, MIT ress, [9] H. L. Yu, Financial opions and real opions: Comparison and applicaion, Shanghai Universiy Finance & Economics ress, Shanghai, 003. [10] A. K. Dixi and R. S. indyck, Invesmen under uncerainy, rinceon Universiy ress, rinceon, [11]. Mirowski and E. M. Sen, Science bough and sold: Essays in he economics of science, Universiy of Chicago ress, Chicago, 00. [1] J. A. Campbell, Real opions analysis of he iming of IS invesmen decisions, Informaion & Managemen, Vol. 39, pp , 00. [13] M. Benaroch, A real opions perspecive of forhcoming, Journal of Managemen Informaion Sysems, Vol. 1, pp. 3 31, 00. [14] F. Black and M. Scholes, The pricing of opions and corporae liabiliies, Journal of oliical Economy, Vol. 4, pp , [15] J. C. Hull, Opions, fuures and oher derivaive securiies (h), renice-hall, Englewood Cliffs, J, Copyrigh 009 SciRes