Including Real Options in Evaluating Terminal Cash Flows in Consumer Auto Leases
DOI:
https://doi.org/10.61190/fsr.v11i2.4728Keywords:
Automobile, Consumer finance, Discounted cash flow, Leasing, OptionsAbstract
Leasing has become a popular method of financing automobile acquisitions. According to White (2001), consumers now acquire a majority of luxury automobiles using lease financing. Traditional lease analysis ignores the value of options embedded in the lease that affect the terminal cash flows. This paper shows that the terminal cash flows from an automobile lease should be viewed as a call option and several put options, each containing different exercise prices. The paper contains data to assist in empirically estimating the values of these options at the end of an automobile lease. Results show that ignoring the interplay of option values at the end of the lease may lead to costly financing decisions by the consumer.
Downloads
Downloads
Published
Issue
Section
License
Copyright (c) 2002 Academy of Financial Services
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Author(s) retain the copyright and full publishing rights without restriction.
Author(s) grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows reusers to distribute, remix, adapt, and build upon the material in any medium or format, for noncommercial purposes only. Reusers must acknowledge the work's authorship and initial publication in this Journal.
Noncommercial means not primarily intended for or directed towards commercial advantage or monetary compensation.
In addition, FSR grants to the UGA Libraries a worldwide, non-exclusive license to all content published by the Journal, including metadata, that is necessary to publish, transmit, and index the Journal and to preserve its content over time.
