Title

Does Time Have Value? An Empirical Examination Of The Put Option Embedded In Refundable U.S. Air Fares

Keywords

Airlines; Contingent claims; Options; Ticket pricing

Abstract

The unprofitable history of the airline industry raises questions about how effectively airlines price their product. In this study, we use option pricing theory to examine the value of the put option embedded in refundable airline tickets. Specifically, we examine whether the time to expiration of the embedded put option is properly priced. Compiling daily real-time ticket price data for Delta and Southwest over 3.5 months, we find little evidence to suggest that airlines price the value of time in the embedded put option. However, we do find evidence suggesting that options are priced higher on business-dominated routes than on vacation-dominated routes. © Springer Science + Business Media, LLC 2008.

Publication Date

10-1-2009

Publication Title

Journal of Economics and Finance

Volume

33

Issue

4

Number of Pages

376-392

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1007/s12197-008-9025-7

Socpus ID

70350400166 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/70350400166

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