A Real Option Approach To Value Of Certification

We usually need to face the harassment of certifications in daily life.For reducing the cost caused by information dissymmetry, we need certifications to provide signals. Certification is standard and legal form of qualifications. Qualification usually means status, career, conditions, identity that is be engaged in a certain activity etc.. In this information times, so many certifications not only do us a favor, but also make themselves become "Black-box". We don't know how many benefits a certain certification can bring us, and whether we should get it, or how and when to get it, mostly also ignore how to sale or rent them. With the modernize and international progress of China, various certifications have already influenced us following one by one. For example, the Ministry of Labour and Social Security PRC total promulgated 113 national occupation standards just in 2006(Most of them have relevant certifications).In the view of systemic appraisal lacking for certifications with option method for the moment, the article constructs a price valuation model with real option approach. First we compare the option characteristics of certification with financial option and other real options. Based on that comparison, with golf membership as example, we calculate the value of its underlying asset by means of decomposition method. On this foundation, we work out the value of certification, and deduce a numerical result, and then discuss the properties of the formula in brief. Finally, this paper also takes a member (Lotus Hill Golf) as an example to demonstrate this model.With application of the model, the results reveal that the member value will descends along with the member's mount, that differs from the process of price movement determined by supply and demand of the members, and that carry out by depreciation of the underlying asset, with more the members everyone can enjoy little club service. In the meantime, bigger uncertainty of the member's amount means bigger member value. In the analysis about Lotus Hill Golf club membership, we discover that the crazy sale of member results in disaster. Although price of the member is still high, but the trade on the market is difficult, there is little people want to buy it. Based on analysis of the model's result and other related articles, we can see the situation is serious in market of member.Considering the non-tradable character of its underlying asset and the influence of the member's amount to its value, the article constructs full models with real option approach and supplies particular calculation method. Hope the idea of this article can be widely applied to the pricing of certifications.