In recent years, the uncertainty surrounding corporate management has increased for several reasons, and investments in enterprise and equipment have become increasingly risky in terms of future profitability. As a result, many businesses now prefer to keep such investments at arm’s length by obtaining equipment through equipment-providing services, where the provider makes the investment, and his/her profits depend on how much and/or how long each user operates the provided equipment. A provider must be able to accurately determine the amount of risk related to providing such equipment and then price its services accordingly to operate profitably. Contracts have conventionally been priced based on the amount of risk associated with each contract. We describe an approach to lease pricing that takes into account the diversification effect that comes from providing equipment to users in various types of industries and in various geographical regions. The diversification reduces the overall risk, enabling the provider to profitably lease equipment at lower prices. Evaluation of this portfolio approach using actual industry data showed that the maximum diversification effect is about a 55% reduction in risk.
risk, price, portfolio, risk premium, risk reduction rate
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