TY  - JOUR
AB  - This paper models the lessee's default options and estimates the economic value of the options for a lessee using a discrete time binomial American option pricing model. Results show a positive relationship of the option premium with the original rent and a negative relationship with the relocation costs. Finds that the default probability is higher for lessees who are more sensitive to rental changes and place less emphasis on the fitting‐out quality. Suggests that rental volatility and rental growth rate are two significant factors that have positive relationships with the default option values. The risk‐free rate, on the other hand, has an inverse relationship with the default option values because a higher risk‐free interest rate reduces the present value of rental savings. Lease term length to expiration has a positive effect on the default option value, implying that the default option premium will decay as the term to expiry is shortened.
VL  - 22
IS  - 2
SN  - 1463-578X
DO  - 10.1108/14635780410536179
UR  - https://doi.org/10.1108/14635780410536179
AU  - Foo Sing Tien
AU  - Liang Tang Wei
PY  - 2004
Y1  - 2004/01/01
TI  - Valuing leasing risks in commercial property with a discrete‐time binomialtree option model
T2  - Journal of Property Investment & Finance
PB  - Emerald Group Publishing Limited
SP  - 173
EP  - 191
Y2  - 2024/09/19
ER  -