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Real option pricing in mixed-use development projects

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Fourt, R., Marcato, G. and Ward, C., (2007) Real option pricing in mixed-use development projects. Working Papers in Real Estate & Planning. 09/07. Working Paper. University of Reading, Reading. pp31.

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Abstract/Summary

The application of real options theory to commercial real estate has developed rapidly during the last 15 Years. In particular, several pricing models have been applied to value real options embedded in development projects. In this study we use a case study of a mixed use development scheme and identify the major implied and explicit real options available to the developer. We offer the perspective of a real market application by exploring different binomial models and the associated methods of estimating the crucial parameter of volatility. We include simple binomial lattices, quadranomial lattices and demonstrate the sensitivity of the results to the choice of inputs and method.

Item Type:Report (Working Paper)
Divisions:Henley Business School > Real Estate and Planning
ID Code:20995
Publisher:University of Reading
Publisher Statement:The copyright of each working paper remains with the author. If you wish to quote from or cite any paper please contact the appropriate author; in some cases a more recent version of the paper may have been published elsewhere.

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