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

  • Andrianos Tsekrekos

    ()

  • George Kanoutos

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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File URL: http://hdl.handle.net/10.1007/s11146-011-9350-z
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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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