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Study On Risk Decision-making For Real Estate Investment Based On Bayes Decision Theory

Posted on:2004-10-15Degree:MasterType:Thesis
Country:ChinaCandidate:Q MiaoFull Text:PDF
GTID:2156360092497829Subject:Structural engineering
Abstract/Summary:PDF Full Text Request
The specialty of real estate determinates its numerous characteristics, such as long investment period, high demand of investment and complicated influencing factors, which make it distinguished from other investments and induce its high risk. The investors are in face of different risks, because the greater benefits are always coupled with higher risks. Therefore, the method of investigating and analyzing these risks, and consequently deciding strategies of real estate investment, are now demanded by real estate investors. In the purpose of the actual demand, this paper concentrates on analyzing risk factors in real estate investment and pursuing a scientific decision-make method to reduce risks in investment decision-making.The risks faced in real estate investment are highly variable, and causes for these risks differ greatly, introducing different consequences. To analyze these risks weighs a lot in investment decision-making. Based on specialty of real estate investment and combined with its actuality in China, the risks presenting in real estate investment are dividend into two categories, systematic risks and non-systematic risks, which draw lesson from risk division presenting in Modern Portfolio Theory (MTP) and Capital Assets Pricing Models (CAPM). Both these two categories of risks are investigated in detail in this paper. From this investigation, investors are capable of identifying causes and consequences of the risks in advance of their occurrence, and determining their investment strategies more reasonably, which will result in varieties of management measures for avoiding and controlling risks.Factors involved in real estate investment are highly dispersed and uncertain, so that decision-making in real estate investment is typically risky. When making decisions, the investor must predict markets of real estate in visible future and estimate collections of different tech-economic data (e.g. unit price, cost, benefits, rate of interest and construction period) that influence economiccost, benefits, rate of interest and construction period) that influence economic benefits, based on historic records or personal experience. But, these predictions and estimations are potentially subjective and can not represent the actuality accurately, thus possibly resulting in decision-making mistakes. The Bayes decision-making method in real estate risk analysis, as proposed in this paper, is proved efficient in avoiding these mistakes. It collects information by market investigation, amends the prior probability, and consequently increases assurance of the investor on future success, so that the risk of decision-making is reduced. Furthermore, applicability of the method is economically assured by investigation on factors such as values of randomly sampled information and cost of sampling.Finally, results of the study are summarized, and drawbacks and limitations of Bayes risk decision-making method in real estate investment are analyzed. Conclusion is drawn that, with the development in real estate investment market and introduction of new theories and techniques, the method proposed can be developed and perfected continuously, accompanied with increase of its applicability.
Keywords/Search Tags:Real Estate Investment, Risk Decision-Making, Utility Function, Bayes Decision-Making
PDF Full Text Request
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