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Real Options Premia Implied from Recent Transactions in the Greek Real Estate MarketAndrianos E. TsekrekosAthens University of Economics and Business - Department of Accounting and Finance Georgios Kanoutosaffiliation not provided to SSRN November 18, 2011 Journal of Real Estate Finance and Economics, Forthcoming Abstract: 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 36.50%-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%.
Number of Pages in PDF File: 26 Keywords: Urban land values, real options, Greek real estate JEL Classification: G13, R33 Accepted Paper SeriesDate posted: November 21, 2011 ; Last revised: November 23, 2011Suggested Citation |
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