Valuing Pay-For-Success Contracts In Social and Financial Innovation: A Put Spread Formula

Pay-for-success contracts are social and financial innovations in social policy and capital markets, respectively. This paper argues that they exhibit option-like payoffs and implements standard option-pricing arguments in assessing the value of investing in pay-for-success contracts. Sensitivities vis-à-vis contract specifications are reflected in the valuation formula and help reach investment and social policy decisions.

Andreas Andrikopoulos
University of Piraeus
Greece

Andrianos Tsekrekos
Athens University of Economics and Business
Greece