VALUING LEASE CONTRACTS - A REAL-OPTIONS APPROACH

Using a real-options approach to endogenously derive the entire term s tructure of lease rates, I develop a unified framework for pricing a w ide variety of leasing contracts. The structure of the model is analog ous to traditional models of the term structure of interest rates. I s how how the model is flexible enough to determine equilibrium lease ra tes for leases of any term and practically any structure, including fo rward leases, leases with options to renew or cancel, lease insurance contracts, adjustable-rate leases, and leases with payments contingent on asset usage.