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Empirical Testing of Real Option-Pricing Models

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  • Quigg, Laura

Abstract

This research is the first to examine the empirical predictions of a real option-pricing model using a large sample of market prices. The author finds empirical support for a model that incorporates the option to wait to develop land. The option model has explanatory power for predicting transactions prices over and above the intrinsic value. Market prices reflect a premium for the option to wait to invest that has a mean value of 6 percent in the sample. The author also estimates implied standard deviations for individual commercial property prices ranging from 18 to 28 percent per year. Copyright 1993 by American Finance Association.

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  • Quigg, Laura, 1993. "Empirical Testing of Real Option-Pricing Models," Journal of Finance, American Finance Association, vol. 48(2), pages 621-640, June.
    • Handle: RePEc:bla:jfinan:v:48:y:1993:i:2:p:621-40
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