Study on Chinese Rural Drinking Water Option and Its Pricing

Jian-Fei Leng, Lu Li

Business School, Hohai University, Nanjing, China.

DOI: 10.4236/jfrm.2012.14010                

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.

Keywords

Rural Drinking Water; Water Option; Pricing Model

Conflicts of Interest

The authors declare no conflicts of interest.

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