Academic Research On Investment Decision Of Real Estate Development Based On Real Options Approach

Real estate industry is a pillar industry for national economic development and has an enormous influence on national economy and people's welfare. However, real estate industry has some features such as long cycle, high investment and huge fluctuation, which make it a high uncertain and risky industry. High uncertainty of real-estate developing market calls for a scientific investment method. Consequently, the academic research of real estate investment under uncertainty circumstance is very meaningful. Main body of real estate investment is real estate developers and whether their investment decisions are scientific will affect market risk gigantically. Furthermore, healthy development of real estate industry will stimulate national economy sustainable and stable development. Real options, as a sort of standard stochastic analyzing technology are suitable for analyzing investment decision under high uncertainty. It can be divided into two methods in terms of analyzing process: discrete-time and continuous-time. Though solution of discrete time is simple and straight, its hypothesis about future asset value changing is too simple. Thus, it is difficult to conduct an analysis combined with real market condition. Continuous-time method is on the contrary. Utilizing continuous-time real option method, this dissertation makes a systematic theory research about real-estate developing investment decision. We hope the dissertation can explore rational decision of real-estate developing investment from theory angle and provide a reference model for developer's investment practice. What's more, we hope it can make a little bit contribution to healthy development of real estate market.Main content of this research is as following:1. This dissertation conducts a detailed summary about option pricing theory, real options approach, option games and asymmetric information research on the basis reading a great number of dissertations, and gives a concise explanation about continuous-time real options solution technology, and summarizes related theory used to handle with the first passage time of threshold. Meanwhile, it puts forward a general frame for the continuous-time real option analysis.2. Under the assumption of Brown movement, this dissertation analyzes the land conversion from agricultural land to rural land, and uses continuous-time real options approach testing land resource of real estate development under uncertainty and obtaining land price structure function. What's more, it analyzes city expanding average time with the theory of first passage time, and considers tax effect on the transfer, and expands land transfer research field with the introduction of real estate development density. This issue is in line with our country's current situation perfectly, that is, real estate industry develops rapidly and urbanization is in full swing. A lot of agricultural land is converting to urban land to meet the needs of city construction. In this process, understanding the real estate law is the safeguard for right real estate investment from developers, meanwhile, it is the precondition for government making a reasonable regulating policy.3. This dissertation uses continuous-time real options approach and establishes a systematic model to analyze investment decision of real estate developer under uncertainty. Developers'investment decision explored under three market structures: imperfect competition market, asymmetric duopoly market and imperfect information market with noise. After considering construction time, we get optimal developing threshold, discuss the threshold passage,and analyze average waiting time of development. In addition, in terms of features of real estate development, analysis of optimal developing density is introduced in most models. When real estate developers make decisions, they not only decide to invest but also decide how much to invest but the latter point is always ignored in other investing decision models. After getting all results of models, we not only utilize real economic phenomena to prove rightness of models but also utilize model result to explain economic phenomena, which can supply theoretical support and advice on government regulating policy.Main innovation of the dissertation is as following:1. Under the assumption of Brown movement, this dissertation completely analyzes the land conversion from agricultural land to rural land, and uses continuous-time real options approach testing land resource of real estate development under uncertainty2. Making use of option games theory to analyze real estate development model of asymmetry duopoly market, the dissertation gives a full asymmetry dynamic sub-game perfect Nash equilibrium strategy and analyzes economic idea through cost and demand asymmetry assumption considering real estate development decision of asymmetry duopoly market.3. In terms of real estate features, the dissertation utilizes noisy asset theory analyzing asymmetry information of asset value's impact on real estate development investment decision.4. The dissertation emphasizes optimal investment timing passage question ignored by traditional real options research and integrate first passage time theory systematically, which makes up the regret of traditional research.In all, the dissertation exerts a systematical theory research on real estate developing decision under continuous-time and fills in a domestic research blank. It can be a guide for developer's real estate investing decision and also can be a theoretical support for government regulating the real estate market. Finally, it deepens understanding of investing decision with the application of real options approach under uncertainty.