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The value of embedded real options : evidence from consumer automobile lease contracts — a note
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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 1544-6123
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Official URL: http://dx.doi.org/10.1016/j.frl.2008.08.003
Abstract
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 |
| Publisher: | Academic Press |
| ISSN: | 1544-6123 |
| Date: | December 2008 |
| Volume: | Vol.5 |
| Number: | No.4 |
| Number of Pages: | 8 |
| Page Range: | pp. 213-220 |
| Identification Number: | 10.1016/j.frl.2008.08.003 |
| Status: | Peer Reviewed |
| Publication Status: | Published |
| Access rights to Published version: | Restricted or Subscription Access |
| URI: | http://wrap.warwick.ac.uk/id/eprint/44775 |
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