A Note on Embedded Lease Options

Eric Clapham

Journal of Real Estate Research, 2003, vol. 25, issue 3, 347-360

Abstract: Buetow and Albert (1998) discuss options embedded in lease contracts. They present a pricing framework, calibrate it using data from the National Real Estate Index and apply it using a numerical method known as the finite difference method with absorbing boundaries. This note extends the analysis. Analytic solutions are presented and some of the findings are discussed. The framework developed by Grenadier is used to compare indexed renewal options for different lease lengths.

Date: 2003
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DOI: 10.1080/10835547.2003.12091112

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