Valuing options to renew at future market value: the case of commercial property leases

Financial Innovation

Table 5 Option price and option value for both parties (HK$ thousand)

Cases	Option price	Option price (% of lease value)	Value to tenant	Value to landlord	Original rental (/month)	Original lease term (month)	Renewal lease term (month)
1	421.40	12.66	1312.91	470.10	79,326	24	12
2	352.20	3.26	2193.60	1489.20	210,000	36	12
3	0.00	0.00	2021.80	2023.07	334,165	24	24
4	− 528.45	− 6.64	1950.90	3007.80	217,061	36	36
5	− 593.28	− 6.62	2982.19	4168.76	245,448	36	36
6	44.28	1.33	790.65	701.44	173,810	24	24
7	− 274.09	− 2.89	3178.58	3726.76	289,198	36	36
8	309.71	10.75	1004.34	385.19	106,766	24	12
9	323.94	7.89	1198.15	549.82	96,148	24	12
10	− 98.95	− 1.17	3129.05	3326.94	231,660	36	36
11	148.69	26.63	371.49	74.11	52,920	12.6	12
12	121.39	2.94	1196.93	953.33	75,000	24	24
13	226.07	4.33	929.25	476.67	116,864	36	12
14	183.58	13.56	528.64	161.67	53,521	24	12
15	445.50	6.52	2734.78	1842.59	205,000	24	24
16	340.36	6.30	3024.05	2345.11	129,216	24	36
17	121.02	1.79	2838.22	2597.32	153,828	36	24
18	− 13.62	− 0.52	937.22	964.45	61,347	36	36
19	− 249.26	− 6.85	838.07	1336.59	204,720	36	36
20	− 337.03	− 3.61	3106.99	3782.80	173,000	36	36
21	171.60	20.99	635.63	292.42	70,528	13	36
22	806.34	10.96	2667.40	1054.72	282,255	24	12
23	− 201.96	− 2.22	1366.20	1770.12	190,890	36	24
24	32.35	0.17	4361.98	4299.78	291,760	36	24
25	242.98	19.69	669.02	183.05	39,500	24	12