Research On Government Subsidy Model Of Private-owned Old-age Care Institutions Based On Embedded Options

In a broad sense,elderly care services,including all service activities that satisfy the material life and meet the spiritual needs of old people,belong to quasi-public goods in social goods.In the past,our country’s old-age care services were principally unprofitable services provided by the government for a long time,with low market participation.At present,the old-age boom in our country is showing a tendency of accelerated development.With the characteristics of aging,incapacitation,and empty nesting,the demand for elderly care services is growing rapidly,while at the same time,the function of family care for the elderly is gradually weakening.In order to alleviate the financial burden,it is essential to encourage and support more social capital to enter the elderly care service market.In the daily operation of the private-owned old-age care institutions,the cash flow is greatly affected by the fluctuation of occupancy rate.In many cases,unless the government provides guarantees,for example,a minimum occupancy rate,the privateowned old-age care institutions are most likely in the risk of cash flow rupture and have to withdraw from the elderly care service market.Most of the current government subsidies for private-owned old-age care institutions are based on the traditional NPV method.Generally speaking,the profitability of private-owned old-age care institutions obtained by the traditional NPV method has some limitations.Firstly,the income is greatly affected by future uncertainties,it is tough to precisely figure out the exact value of the project.Secondly,the government’s admissive standard usually depends on the experience of participating decision-makers,which resulting in there is no certain standard.The above-mentioned factors will cause the government’s subsidy to the privateowned old-age care institutions to be subjective,which is not effective to rationally sharing the operating risks of private-owned old-age care institutions.At the same time,the continuously growing aging population has also spelt tremendous pressure to the whole society on the social security pension.The government’s finances have to assume greater responsibilities,and fiscal expenditures are facing sustainable problems.Based on this,this paper conducts the following research: Firstly,it is found that the occupancy rate is an important variable affecting the income of private-owned old-age care institutions,an embedded option model is constructed as a government subsidy to private elderly care institutions’ single occupancy rate fluctuation risk and an option to adjust the price of elderly care services.Then,HP filter analysis method,polynomial fitting and GARCH-M model are used to predict the mean and variance of the future occupancy rate of elderly care institutions.Finally,combined with the case of a nursing home in a private elderly care institution A in Hangzhou,Monte Carlo simulation is used to calculate the value of the embedded option model,and the new price range of elderly care services is determined according to the value of the option,and the constructed option model is analyzed for the private elderly care institution.The sharing of occupancy rate fluctuation risk.The option model constructed in this paper includes a guarantee option given to the social capital by the government and a call option given to the government by the privateowned old-age care institution.The option model not only guarantees the lowest occupancy rate for the private-owned old-age care institutions,but also restrains the excessive fees of the old-age care services to damage the social welfare to a certain extent.And the addition of options allows the government to pay for the subsidies to privateowned old-age care institutions in installments,alleviating the financial pressure.This paper innovatively constructs an option model based on the fluctuation of the occupancy rate,on the basis of traditional NPV static analysis method and the impact of various uncertain factors on the income of the private-owned old-age care institutions.At the same time,this paper constructs the GARCH-M model to predict the volatility when predicting the demand for elderly care services.The GARCH-M model was mostly used in the prediction of the return and volatility of financial products such as stocks and funds,so the application in the elderly service market is relatively rare.In addition,the paper uses Monte Carlo simulation to predict the new pricing range of old-age care services after adding real options,and balances the relationship between the maximization of social welfare and the rationalization of social capital benefits.It is hoped that the government subsidy option model constructed in this paper can provide a reference for future government support for private-owned old-age care institutions.