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The pricing of embedded lease options

Author

Listed:
  • Amédée-Manesme, Charles-Olivier
  • des Rosiers, François
  • Grégoire, Philippe

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.

Suggested Citation

  • Amédée-Manesme, Charles-Olivier & des Rosiers, François & Grégoire, Philippe, 2015. "The pricing of embedded lease options," Finance Research Letters, Elsevier, vol. 15(C), pages 215-220.
    • Handle: RePEc:eee:finlet:v:15:y:2015:i:c:p:215-220
    DOI: 10.1016/j.frl.2015.10.001
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Leases; Lease options; Binomial tree; Tenants;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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