Electronic Resource
Bradford, West Yorkshire [u.a.]
:
Emerald
Journal of property investment & finance
22 (2004), S. 173-191
ISSN:
1463-578X
Source:
Emerald Fulltext Archive Database 1994-2005
Topics:
Economics
Notes:
This paper models the lessee's default options and estimates the economic value of the options for a lessee using a discrete time binomial American option pricing model. Results show a positive relationship of the option premium with the original rent and a negative relationship with the relocation costs. Finds that the default probability is higher for lessees who are more sensitive to rental changes and place less emphasis on the fitting-out quality. Suggests that rental volatility and rental growth rate are two significant factors that have positive relationships with the default option values. The risk-free rate, on the other hand, has an inverse relationship with the default option values because a higher risk-free interest rate reduces the present value of rental savings. Lease term length to expiration has a positive effect on the default option value, implying that the default option premium will decay as the term to expiry is shortened.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1108/14635780410536179
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