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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. doi:10.1016/j.frl.2008.08.003 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 | ||||
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Subjects: | H Social Sciences > HG Finance | ||||
Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Journal or Publication Title: | Finance Research Letters | ||||
Publisher: | Academic Press | ||||
ISSN: | 1544-6123 | ||||
Official Date: | December 2008 | ||||
Dates: |
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Volume: | Vol.5 | ||||
Number: | No.4 | ||||
Number of Pages: | 8 | ||||
Page Range: | pp. 213-220 | ||||
DOI: | 10.1016/j.frl.2008.08.003 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
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