The value of embedded real options : evidence from consumer automobile lease contracts — a note
Gamba, Andrea and Rigon, Riccardo. (2008) The value of embedded real options : evidence from consumer automobile lease contracts — a note. Finance Research Letters , Vol.5 (No.4). pp. 213-220. ISSN 1544-6123Full text not available from this repository.
Official URL: http://dx.doi.org/10.1016/j.frl.2008.08.003
Giaccotto et al. [2007. Journal of Finance 62, 411–445] provide a simple model for pricing the cancellation and the purchase options typically embedded in automobile lease contracts, assuming constant interest rates. They show that the cancellation option is worthless because of a penalty applied if the lease is terminated before maturity. We extend their results by developing a model with stochastic interest rates, and show that the cancellation option has a significant value also in presence of the penalty. We provide sufficient conditions to make the cancellation option worthless in our more general framework.
|Item Type:||Journal Article|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Social Sciences > Warwick Business School > Finance Group
Faculty of Social Sciences > Warwick Business School
|Journal or Publication Title:||Finance Research Letters|
|Number of Pages:||8|
|Page Range:||pp. 213-220|
|Access rights to Published version:||Restricted or Subscription Access|
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