Economics of Automobile Leasing: The Call Option Value

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...

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Bibliographic Details
Published inThe Journal of consumer affairs Vol. 29; no. 1; pp. 199 - 218
Main Author MILLER, STEPHEN E.
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.06.1995
University of Wisconsin Press
Blackwell Publishers Ltd
Subjects
Automobile leases
Automobile leasing
Automobiles
Buy or lease decisions
Call options
Capital budgeting
Car leasing
Car rental
Cash
Cash flow
Consumer behavior
Consumers
Contracts
Economic models
Exhibits
Fair market value
Finance leases
Leasebacks
Leases
Leasing
Market prices
Operating leases
Options (Finance)
Payments
Prices
Purchase options
Purchasing
Put & call options
Random variables
Statistical analysis
Strikes
Studies
United States > US
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Summary: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.
Bibliography:http://dx.doi.org/10.1111/j.1745-6606.1995.tb00045.x
ark:/67375/WNG-92PG8RX9-6
istex:ABB9E4C363CEE4357288B5AF3EEE735E4FA3DAF9
ArticleID:JOCA199
Journal
The helpful comments of Kandice Kahl, Al Tinsley, Gary Wells, and the
editor and reviewers are appreciated.
ISSN:0022-0078
1745-6606
DOI:10.1111/j.1745-6606.1995.tb00045.x