Journal of Financial Economics Vol. 12 No. 2 1983
Valuation of asset leasing contracts
Abstract
This paper describes the relation among a variety of asset leasing contracts, including: (1) cancellable operating leases; (2) leases which grant the lesse an option to extend the life of the lease; (3) leases that grant the lessee an option to purchase the leased asset at a fixed price at the maturity date of the lease; (4) leases that grant the lessee the right to purchase the leased asset at its ‘fair market value’ at the maturity date of the lease; (5) leases that grant an option to the lessee to purchase the leased asset at a prespecified price anytime during the life of the lease; (6) leases that require the lessee to purchase the leased asset at a fixed price at the maturity date of the lease; and (7) leases that contain non-cancellation provisions. The paper uses a compound option pricing framework to develop a general model for valuing (or evaluating) each of the types of leasing contracts. Numerical examples are presented to illustrate the effect of the various elements of a leasing contract — including cancellation risk and residual value risk — on equilibrium rental payments.
- DOI
- 10.1016/0304-405x(83)90037-5
- Volume
- 12
- Issue
- 2
- Pages
- 237-261
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref