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Article: Demand Uncertainty, Timing of Development and Leasehold Land Valuation: Empirical Testing of Real Options in Residential Real Estate Development

TitleDemand Uncertainty, Timing of Development and Leasehold Land Valuation: Empirical Testing of Real Options in Residential Real Estate Development
Authors
Issue Date2014
PublisherBlackwell Publishing, Inc.
Citation
Real Estate Economics, 2014, v. 42 n. 4, p. 829-868 How to Cite?
AbstractThis article develops and tests a long-dated American call option pricing model for valuing development land under leasehold. We analyze and test option values in ten detailed Hong Kong cases involving purchase, holding, converting and developing land. We also test for optimal exercise of long-dated American calls using processes based on the optimal trigger ratio feature of the perpetual American call option model. Generally, the empirical results confirm presence of a positive and nontrivial option premium (mean +5.274%) in the cases, and that developers appear to delay exercise to the point predicted by the real options model.
Persistent Identifierhttp://hdl.handle.net/10722/196124
ISSN
2015 Impact Factor: 0.869
2015 SCImago Journal Rankings: 1.775
SSRN
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorYao, Hen_US
dc.contributor.authorPretorius, FIHen_US
dc.date.accessioned2014-03-28T07:40:26Z-
dc.date.available2014-03-28T07:40:26Z-
dc.date.issued2014en_US
dc.identifier.citationReal Estate Economics, 2014, v. 42 n. 4, p. 829-868en_US
dc.identifier.issn1080-8620-
dc.identifier.urihttp://hdl.handle.net/10722/196124-
dc.description.abstractThis article develops and tests a long-dated American call option pricing model for valuing development land under leasehold. We analyze and test option values in ten detailed Hong Kong cases involving purchase, holding, converting and developing land. We also test for optimal exercise of long-dated American calls using processes based on the optimal trigger ratio feature of the perpetual American call option model. Generally, the empirical results confirm presence of a positive and nontrivial option premium (mean +5.274%) in the cases, and that developers appear to delay exercise to the point predicted by the real options model.-
dc.languageengen_US
dc.publisherBlackwell Publishing, Inc.-
dc.relation.ispartofReal Estate Economicsen_US
dc.rightsThe definitive version is available at www.blackwell-synergy.com-
dc.titleDemand Uncertainty, Timing of Development and Leasehold Land Valuation: Empirical Testing of Real Options in Residential Real Estate Developmenten_US
dc.typeArticleen_US
dc.identifier.emailPretorius, FIH: fredpre@hkucc.hku.hken_US
dc.identifier.authorityPretorius, FIH=rp01018en_US
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1111/1540-6229.12052-
dc.identifier.scopuseid_2-s2.0-84912026634-
dc.identifier.volume42en_US
dc.identifier.issue4-
dc.identifier.spage829-
dc.identifier.epage868-
dc.identifier.isiWOS:000345632400002-
dc.publisher.placeUnited States-
dc.identifier.ssrn2531511-

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