Price Analyzing And Application Research On Delayed Option In Real Estate Development

We mainly discussed the application of real option approach on decision making in real estate development. The real estate development could be regarded as a relayed call option. By way of real option pricing method, we could solve the decision problem in the development of real estate, and controlled the risk in the development of real estate, so as to maximize the profit.We compared the financial options with the real option, and found the similarity of the two options. The financial option pricing method could be applied to the problem of real option pricing under certain condition. Meanwhile, we found that the binary tree method was provided with superiority in the real option pricing on real estate. The binary tree method, simple, intuitionistic and discrete, was convenient to be applied and the results were more possibly to be manipulated.After comparing traditional DCF method with real option analysis method, we found that the real option analysis was ascendant on solving uncertain problem .We used the binary option model to solve real option pricing problem in real estate development, got the concrete pricing formula, and modified some details in the binary option pricing process.In the demonstration research, we introduced the hurdle price and gave the calculation formula. The leader could make a decision according to the hurdle in different term. As soon as the price of estate exceeded the hurdle price, the project started, or else, waiting for a better chance. Meanwhile, we emphasized two important factors: vitality and risk free rate. The two factors were positive correlated to hurdle price.Through the study of this paper, we found that there was a substantial discrepancy between traditional DCF method and modern real option analysis technique. The former was adapted to positive problem, unable to solve uncertain issue. If the traditional DCF method was applied to uncertain issue, the results would be improper and impacted the leader's decision. The latter, in consideration of the value of uncertainty, adequately dredged up the probability of moving to favorable direction, and let the leader make active strategy. We utilized the binary option model, to solve the pricing issue in the real estate development. If the price of real estate exceeds the hurdle price of the same term, the real estate project can be started up. Otherwise, we wait for a profitable chance.