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Physical Real Estate : Risk Factors and Investor Behaviour

Author

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  • Mahdi Mokrane
  • Michel Baroni

Abstract

This paper considers the use of options in real estate risk financing and investment. A model similar to Black and Cox (1976) for pricing senior-junior debt claims is presented and proved useful for pricing outside debt financing in the context of real estate risk. Next, Quigg's (1993) strategic real options model is also simulated and used to value project flexibilities which cannot be captured using traditional net present value (NPV) models, such as delaying investment. These models' useful inputs, and especially the volatility estimator, are provided by results on real estate indexes derived in a companion paper by BarthÈlÈmy, Baroni and Mokrane (2001) on the risk factors in physical real estate, who use a database of over 100 000 transactions mainly for residential assets in the Paris area over the 1973 - 1998 period. Comparative statics and empirical implications are provided.

Suggested Citation

  • Mahdi Mokrane & Michel Baroni, 2001. "Physical Real Estate : Risk Factors and Investor Behaviour," ERES eres2001_236, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2001_236
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2001-236
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    References listed on IDEAS

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    1. Shiller, Robert J., 1998. "Macro Markets: Creating Institutions for Managing Society's Largest Economic Risks," OUP Catalogue, Oxford University Press, number 9780198294184.
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    Cited by:

    1. Michel Baroni & Fabrice Barthélémy & Mahdi Mokrane, 2011. "A repeat sales index robust to small datasets," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 29(1), pages 35-48, February.
    2. Baroni, Michel & Barthélémy, Fabrice & Mokrane, Mahdi, 2005. "A PCA Factor Repeat Sales Index (1973-2001) To Forecast Apartment Prices in Paris (France)," ESSEC Working Papers DR 05002, ESSEC Research Center, ESSEC Business School.
    3. Baroni, Michel & Barthelemy, Fabrice & Mokrane, Madhi, 2003. "Which Capital Growth Index for the Paris Residential Market?," ESSEC Working Papers DR 03002, ESSEC Research Center, ESSEC Business School.
    4. M. Baroni & F. Barthélémy & M. Mokrane, 2004. "Physical Real Estate: A Paris Repeat Sales Residential Index," THEMA Working Papers 2004-17, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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