Pricing Lease Contracts With Options in Imperfect Markets of Durable Goods

Topics:
Pricing and Margins,
Pricing Strategy
Tags:
Durable Goods,
Pricing Strategy
Source:
Ford Motor

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Overview: Lease contracts of finitely durable goods often embed options for lessees to hedge against the stochastic depreciation of the leased goods. In addition to the usual complexity in durable goods research, the embedded options in lease contracts and the illiquidity of the associated used-goods market further complicate the task of pricing the lease contracts. Because the lease contracts ultimately depend on the expected used-goods prices, it is also important to endogenized the used-goods market along with the new-goods market. In this paper a game theoretical model has been developed to price lease contracts and value their options in an imperfect market.

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Format: PDF | Size: 188KB | Date: Nov 2002 | Pages: 36

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