Pricing Upward-Only Adjusting Leases

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.

Constructive role of noise: Fast fluctuation asymptotics of transport in stochastic ratchets

The constructive role of random fluctuations is studied in the context of transport in stochastic ratchets. We discuss the interplay of independent white (thermal) and discrete (external) noises and their generation of transport in anisotropic potentials. The constructive cooperation of such fluctuations is most apparent in the asymptotic limit of fast discrete-valued noise, a limit which presents some interesting mathematical features. We describe the asymptotic analysis of the current in the limit of fast external noise, pointing out the strong qualitative dependence of the current on the interplay of the independent noise sources and its surprising sensitivity to the regularity of the underlying anisotropic ratchet potential. © 1998 American Institute of Physics.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/69412/2/CHAOEH-8-3-643-1.pd

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