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| A Note on Embedded Lease Options
Authors: Eric Clapham Start Page: 347 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. In this note the
analysis is extended. Firstly, analytic solutions are presented.
Secondly,
some of the findings are discussed. Finally, the framework developed by
Grenadier is used to compare indexed renewal
options for different lease lengths.
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