Real Options Premia Implied from Recent Transactions in the Greek Real Estate Market
Andrianos E. Tsekrekos
Athens University of Economics and Business - Department of Accounting and Finance
affiliation not provided to SSRN
November 18, 2011
Journal of Real Estate Finance and Economics, Forthcoming
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, R33Accepted Paper Series
Date posted: November 21, 2011 ; Last revised: November 23, 2011
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