The Application Of Option-Game Theory To Real Estate Investment

The traditional investment decision methods, represented by Net Present Value method, can not properly deal with the uncertainty, irreversibility and competition of the real estate projects. They ignore the strategic value of creating following growth opportunities and the flexibility to adjust according to the market changes. Real Options Theory regards all kinds of investment opportunities and management flexibility as option and provides a practical qualitative tool. It is a great progress of investment decision theories.In recent years the real estate market environment becomes more and more complicated. In this case, the enterprises face not only the uncertainty, but also the intense competition from others. Therefore, the application of option-game theory in the investment decision of the project becomes the focus gradually.This article uses the option-game theory to discuss only two real estate investors in the market. We first discuss under the single stage investment competitive market environment the real estate enterprises how to invest, and we obtain the follower and leader's investment option value and the investment marginal value, and then we give an actual example. Then we carry on the similar discussion on two-stage investment.The structure of this thesis is as follows. The first part is introduction. The second part is the brief introduction of real options and game theory. In the third part at first we in turn analyzes the traditional real estate investment decision-making method, the real options method and the option-game method. Then we make the comparison to these three methods. In the fourth part we discuss that under the single stage and two-stage investment environment the real estate enterprises decide how to invest and then check the possible equilibriums.