Analysis of the Nature of Embedded Options of Cash Discounts

Using cash discount policy in accounts receivable management can effectively improve recycling arrears. Current research in this area mainly focuses on cash-discount-cost calculation and accountant processing. Booming development in financial engineering makes people have more and brand-new understanding of the connotation of market economy and more and more economic phenomena have been explained from the angle of financial essence. With the help of financial engineering fundamental theories, this paper puts forward an idea that there are embedded options in cash discount, whose value in essence will decrease with the passage of time. Therefore, the buyer chooses prepayment by credit policy and gets embedded value of the put options, which explains the motives of enterprises for cash discount.