The Application Of Real Option Approach To Investment Decision-making In Real Estate

Along with the increasing development of our country's real estate market, the investment decision-making has attracted more and more attention. According to the characteristics of the real estate with the long cycles, large investments, strong uncertainness, the traditional investment decision methods (the main method is DCF) can not avoid displaying the inherent shortcomings when they evaluate the real estate industry. Real option changed the people's opinion about the uncertain when it is used to evaluate the projects. The standpoint of real option is that the uncertain can add the value of the project. The research to the real option approach has entered to extend the applied stage on aboard,but local of the research is just in beginning, The paper is a beneficial study towards the real option approach ,being used in real estate investment decision-makings.Through the documents research, the combination of theoretical research and practical research, the combination of qualitative analysis and quantitative analysis, the paper make a system discussion about the application that the real option used in the real estate investment decision-making. The main work is:(1) Analyzing the real option characteristic of real estate investment, and make a combination of them to describe the real option evaluation model, including the Option to Defer, the Option to Staged and the Option to Growth.(2)Considering the bubble phenomenon on the real estate market into the Black-Scholes pricing model, then revise the traditional estimation of the variance which the uncertainness is the most. Making the bubble rejected variance as the new parameter, and then computing the new value of the project. Finally obtain a steady conclusion.(3)By a case of the real estate project, using the method of NPV, real option that on the basis of history variance and bubble rejected variance to evaluate the project, and making a contrast of three values, so it can be tested that the revise method is feasible and effective. So it makes the real option pricing model more realistic and scientific when it is used to evaluate the value of the real estate project.