Believes that a feature of most closed‐end automobile leases is the right to purchase the car for a specified price at the termination of the lease. This characteristic of a closed‐end autombile lease is similar to a European call option and is transferred to the lessee at no explicit charge. Develops a methodology to calculate the value of the call option feature embedded in closed‐end automobile leases. Concludes that the rational lessee should lease autos that generate low option values.
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