Optimisation of Extended Warranty Price with Usage Rate Being Considered

Optimisation of extended warranty has attracted considerable attention in the literature. Its focuses are on optimisation of the length and/or the price of the ex-tended warranty. Such research is done by good mathematicians with some unrealistic assumptions. For example, in the real world, the length of extended warranty is usually a positive integer, which may be 6 months, 12 months, etc, but it is seldom 3.5623 months. In this paper, we take into consideration of this fact and assume that the buyers may decide to purchase a different number of the base periods of extended warranty. We then propose a novel method of optimising the price of extended warranty.