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Real Options Premia Implied from Recent Transactions in the Greek Real Estate Market

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  • Andrianos Tsekrekos

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  • George Kanoutos

Abstract

This research is the first to examine the empirical predictions of a real option-pricing model on market values from the realty market of a Euro area country, namely Greece. Using a manually collected sample of land and property transaction prices, we demonstrate that, a model which incorporates the option to wait to develop land has explanatory power on observed prices over and above the intrinsic value from a simple discounted cash flow (DCF) approach. Recent land transactions in our sample seem to reflect a premium for the option to wait (‘real option premium’) that can be as high as 26.66%–52.38%, especially in the west and north suburbs of Athens. Estimates of annual volatility for specific properties, as implied by transaction prices, are found to range from 15% to 21%. Copyright Springer Science+Business Media, LLC 2013

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Bibliographic Info

Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 47 (2013)
Issue (Month): 1 (July)
Pages: 152-168

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Handle: RePEc:kap:jrefec:v:47:y:2013:i:1:p:152-168

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Web page: http://www.springerlink.com/link.asp?id=102945

Related research

Keywords: Real options; Urban land values; Greek real estate; Development; G13; R33;

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