How to effectually price a rent-to-own option embedded a barrier
level? This question is an important issue in financial market. For the
purpose, we use the boundary integral method of PDE to derive a closed-form
approximate solution of the rent-to-own option embedded a barrier level, where
the tenant has the right to buy a specified rental house during the duration of
contract. This study finds several characteristics through a sequence of
numerical analyses and provides an available method for pricing rent-to-own
options taking housing contracts with a barrier level as an example. This paper
is original research in pricing a rent-to-own option using a boundary integral
method and provides a reference to financial market about the valuation of a
rent-to-own option embedded a barrier level well.
JEL classification numbers: C02, G13.
option, Boundary integral method, Greenís function.