Real Estate Development And Investment Real Option Decision-making Model And Applied Research

Real option is the right but not the obligation held by an investor to take actions when making decisions under uncertainty. It can supplement and rectify the ignorance of the value of flexibility by traditional investment decision-making method. Overseas, real option research has already achieved considerable success, and empirical researches on it have begun, especially in the area of real estate development, scholars have established many real option models on real estate development, some of which have been proved by empirical studies. In China, domestic research on real option started a little bit late, and is still at the stage of theory introduction, especially in the area of real estate development, scholars just tend to emphasize the option nature of the land, but little of them has done in-depth study on foreign real option models and most of them directly use financial option pricing model for pricing options for real estate development.As the domestic real estate market environment is different from that in foreign markets, we could not take foreign models directly for pricing real options, and it will easily lead to wrong decisions for poor accuracy if we directly use financial option for pricing real option. Therefore we need to explore in depth real option theory and real option theory on real estate development, and create a real option model for real estate development based on the domestic market.The market volatility is an important parameter in real option model, and the lack of this parameter is the main obstacle to the practical application for real option models. Foreign scholars have made some contributions on the methods of calculating the volatility in real estate market, so we could draw foreign research results, combined with our market environment, and shoot on the final obtainment of the parameter. That is very urgent.This paper concentrates on those two questions. In the light of real option theory and real option theory on real estate development, we eliminate the floor area ratio for its lack of practical significance in domestic market, add an innovational parameter-land holding cost to capture the characteristics of domestic market, and finally establish an real option model within the parameter-land holding cost for real estate development decision-making; by drawing fruits of foreign method on calculating volatility of real estate market, we access to the method of calculating the historical volatility and implied volatility, then we use those methods to calculate the two of Hang Zhou office market, and the results are 15.23% and 25.49% respectively, we also find that the risk of Hang Zhou office market may be underestimated by the historical volatility. Finally, this paper provides a case study to specifically illustrate the application of the real option model for real estate development decision-making and the calculating model for market volatility. After that, the impact on investment of interest rate, volatility and land holding cost is analyzed respectively. The results show that theimpact of interest rate on investment in real estate development is likely faint, while volatility and land holding very significant.