Monte Carlo Simulations versus DCF in Real Estate Portfolio Valuation
AbstractThis paper considers the use of simulated cash flows to value assets in real estate investment. We motivate the use of Monte Carlo simulation methods for the measurement of complex cash generating assets such as real estate assets return distribution. Important simulation inputs, such as the physical real estate price volatility estimator, are provided by results on real estate indices for Paris derived in an article by Baroni, Barthélémy and Mokrane (2005). Based on a residential real estate portfolio example, simulated cash flows (i) provide more robust valuations than traditional DCF valuations, (ii) permit the user to estimate the portfolio’s price distribution for any time horizon, and (iii) permit easy Values-at-Risk (VaR) computations.
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Bibliographic InfoPaper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 06002.
Length: 31 pages
Date of creation: Feb 2006
Date of revision:
DCF; Monte-Carlo Simulations; Real Estate Indices; Real Estate Valuations;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-12 (All new papers)
- NEP-CMP-2006-03-22 (Computational Economics)
- NEP-FIN-2006-03-11 (Finance)
- NEP-URE-2006-04-07 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Fabrice Barthelemy & Jean-Luc Prigent, 2011. "Real Estate Portfolio Management : Optimization under Risk Aversion," THEMA Working Papers 2011-12, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Fabrice Barthélémy & Jean-Luc Prigent, 2009. "Optimal Time to Sell in Real Estate Portfolio Management," The Journal of Real Estate Finance and Economics, Springer, vol. 38(1), pages 59-87, January.
- Fabrice Barthélémy & Jean-Luc Prigent, 2008. "Optimal Time to Sell in Real Estate Portfolio Management," THEMA Working Papers 2008-13, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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