@article{(Open Science Index):https://publications.waset.org/pdf/2482,
	  title     = {A Zero-Cost Collar Option Applied to Materials Procurement Contracts to Reduce Price Fluctuation Risks in Construction},
	  author    = {H. L. Yim and  S. H. Lee and  S. K. Yoo and  J. J. Kim},
	  country	= {},
	  institution	= {},
	  abstract     = {This study proposes a materials procurement contracts
model to which the zero-cost collar option is applied for heading price
fluctuation risks in construction.The material contract model based on
the collar option that consists of the call option striking zone of the
construction company(the buyer) following the materials price
increase andthe put option striking zone of the material vendor(the
supplier) following a materials price decrease. This study first
determined the call option strike price Xc of the construction company
by a simple approach: it uses the predicted profit at the project starting
point and then determines the strike price of put option Xp that has an
identical option value, which completes the zero-cost material
contract.The analysis results indicate that the cost saving of the
construction company increased as Xc decreased. This was because the
critical level of the steel materials price increasewas set at a low level.
However, as Xc decreased, Xpof a put option that had an identical
option value gradually increased. Cost saving increased as Xc
decreased. However, as Xp gradually increased, the risk of loss from a
construction company increased as the steel materials price decreased.
Meanwhile, cost saving did not occur for the construction company,
because of volatility. This result originated in the zero-cost features of
the two-way contract of the collar option. In the case of the regular
one-way option, the transaction cost had to be subtracted from the cost
saving. The transaction cost originated from an option value that
fluctuated with the volatility. That is, the cost saving of the one-way
option was affected by the volatility. Meanwhile, even though the
collar option with zero transaction cost cut the connection between
volatility and cost saving, there was a risk of exercising the put option.},
	    journal   = {International Journal of Economics and Management Engineering},
	  volume    = {5},
	  number    = {12},
	  year      = {2011},
	  pages     = {1769 - 1774},
	  ee        = {https://publications.waset.org/pdf/2482},
	  url   	= {https://publications.waset.org/vol/60},
	  bibsource = {https://publications.waset.org/},
	  issn  	= {eISSN: 1307-6892},
	  publisher = {World Academy of Science, Engineering and Technology},
	  index 	= {Open Science Index 60, 2011},
	}