Assessing and Negotiating Commercial Contracts

Vlachý, Jan
Publication date: 
JEL codes: 
D81 - Criteria for Decision-Making under Risk and Uncertainty, G13 - Contingent Pricing; Futures Pricing, M21 - Business Economics.
This paper investigates the process of evaluating and negotiating commercial contracts using value-based models. First, contractual assets are defined and related to a comprehensive firm-theoretical background. Several simple valuation models for contracts are then derived and applied, using an option-theoretical background and particular case examples. Quantitative criteria are thus introduced, that can be used as a management toolkit to assist in negotiation, as well as for various corporate valuation purposes by e.g. auditors, appraisers or M&A specialists. Due perspective is given to various contractual asymmetries, which seem to be of considerable importance in the process of negotiation, and may have substantial valuation impacts.
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