Premium
Economics of Automobile Leasing: The Call Option Value
Author(s) -
MILLER STEPHEN E.
Publication year - 1995
Publication title -
journal of consumer affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.582
H-Index - 62
eISSN - 1745-6606
pISSN - 0022-0078
DOI - 10.1111/j.1745-6606.1995.tb00045.x
Subject(s) - lease , value (mathematics) , call option , business , actuarial science , economics , option value , microeconomics , finance , computer science , machine learning , incentive
Previous analyses of the automobile lease versus purchase decision have ignored the value of the call option embedded in closed‐end leases with guaranteed buy back provisions. This paper shows that ignoring the value of this call option results in a bias against leasing in the lease versus purchase decision. Supporting evidence is provided by an empirical model of automobile lease rates.