Empirical Testing of Real Option-Pricing Models
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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Volume (Year): 48 (1993)
Issue (Month): 2 (June)
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