The pricing of real options in discrete time models: Another story of the value of waiting to invest

Yuichiro Kawaguchi, Kazuhiro Tsubokawa

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This paper proposes a discrete time real options model with time-dependent and serial correlated return process for a real estate development problem with waiting options. Based on a Martingale condition, the paper claims to be able to relax many unrealistic assumptions made in the typical real option pricing methodology. Our real option model is a new one without assuming the return process as “Ito Process”, specifically, without assuming a geometric Brownian motion. We apply the model to the condominium market in Tokyo metropolitan area in the period 1971-1997 and estimate the value of waiting to invest in 1998-2007. The results partly provide realistic estimates of the parameters and show the applicability of our model.

Original languageEnglish
Pages (from-to)9-34
Number of pages26
JournalJournal of Property Investment & Finance
Volume19
Issue number1
DOIs
Publication statusPublished - 2001 Feb 1
Externally publishedYes

Keywords

  • Japan
  • Modelling
  • Real estate
  • Real options

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Finance
  • Economics, Econometrics and Finance(all)

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