The pricing of embedded lease options

Charles-Olivier Amédée-Manesme, François des Rosiers and Philippe Grégoire

Finance Research Letters, 2015, vol. 15, issue C, 215-220

Abstract: Office leases are generally agreed upon for extended terms, with possible options to leave or to renew in favor of the tenant. Tenants who have no options during the life of their lease expect to pay a lower rent than those who do. In this letter, we built up a conceptual framework based on binomial tree for the pricing of options embedded in a lease contract. Results show that lease options are dependent upon market rents volatility.

Keywords: Leases; Lease options; Binomial tree; Tenants (search for similar items in EconPapers)
JEL-codes: C60 G32 R30 R33 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:15:y:2015:i:c:p:215-220

DOI: 10.1016/j.frl.2015.10.001

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