TY  - JOUR
AU  - Ambrose,Brent W.
AU  - Hendershott,Patric H.
AU  - Klosek,Malgorzata M.
TI  - Pricing Upward-Only Adjusting Leases
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7622
PY  - 2000
Y2  - March 2000
UR  - http://www.nber.org/papers/w7622
L1  - http://www.nber.org/papers/w7622.pdf
N1  - Author contact info:
Patric H. Hendershott
Fisher Hall
Ohio State University
2100 Neil Avenue
Columbus, OH 43210
Tel: 218/963-1393
Fax: 218/963-9484
E-Mail: hendershott.2@osu.edu
AB  - This paper presents a stochastic pricing model of a unique, path-dependent lease instrument common in the United Kingdom and numerous commonwealth countries, the upward-only adjusting lease. In this lease, the rental rate is fixed at lease commencement but will be reset to the market rate at predetermined intervals (usually every five years) if it exceeds the contract rent. Numerical results indicate how the initial coupon rate should be set relative to that on a symmetric up-and-downward adjusting variable rate' lease under various economic conditions (level of real interest rates and expected drift and volatility of the underlying rental service flow). We also consider the calculation of effective rents when free rent periods are given during either a market collapse or a steady-state drift.
ER  -