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Options in Real Estate Valuation

Author

Listed:
  • Mark POMYKACZ
  • Chris OLMSTED

Abstract

Real options valuation theory is well developed and often used in financial markets, but infrequently applied in real estate appraisal. Real estate presents several opportunities to employ real option valuation theories, including real estate purchase options, development and acquisition feasibility, bankruptcy, abandonment, and litigation. Today, options theory could be employed whenever an appraiser advises a client about a future real estate decision over substantially different and incompatible risky choices. This article explains real options analysis and valuation theories as they apply to real estate, including financial option pricing models, the Black-Scholes-Merton model, real options analysis, binomial options models, and Monte Carlo simulation.

Suggested Citation

  • Mark POMYKACZ & Chris OLMSTED, 2014. "Options in Real Estate Valuation," The Valuation Journal, The National Association of Authorized Romanian Valuers, vol. 9(1), pages 72-93.
    • Handle: RePEc:vaj:journl:v:9:y:2014:i:1:p:72-93
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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