The Study On Application Of Real Option Game On The Investment Of Real Estate

As one of the most prosperous industries to promote the economic development, real estate industry has been charactered as high risk and high profit, therefore, it's very important to make appropriate investment strategies. The traditional evaluation methodology of investment, taking the NPV for example, has some weaknesses to overcome, it ignores the irreversibility of the investment and flexibility of the time for investment, but the real option method can get over the defects, the property of real estate investment embodies itself real options, meanwhile, the contest of real option is very competitive, therefore it's very suitable to apply the option game theory to solve the problems.In this paper, the theory of option game is applied to the investment of real estate in an attempt, in this way, we can make good use of the management flexibility and try to maximize the value of the project. Based on the two substitutable projects, choosing the revenue and investment as the two stochastic variables, we analyze the game between the two companies so called leader and follower respectively, under the preemption setting , we get the value function and the strategy of investment of the players ; with the same method ,we get the value function and the strategy of investment of the players under the without-preemption settings; in order to make model more practicable, we also analyze the impacts of the other third hidden competitors on the value of the players. In addition, the basic processes of the application of option game for the investment of real estate are provided .For the competitive projects as the investment of real estate ,the theory of option game can help us take good opportunity and figure out the optimal time & investment scale, hence ,it's a kind of more suitable method for evaluating the investment under uncertainty.