Application Of Real Option Pricing Method On Land Expropiration In Agircultural Land

China is now experiencing both population urbanization and land urbanizationaccompanied by the current rapid development of urbanization, among the two ubanizationmentioned above, the development of land urbanization is faster than the developmentofpopulation urbanization.According to an investigation on china’s new urban districts in year2013carried out by Relevant departments of China, every percent increase ofurbanization ratewould lead to an increase of thirteen million urban population and require two million mu ofland. Under the background of new urbanization, favorable land policy would promote thesustainable and healthy development of comprehensive economy and society. Land policy,which the core is land, is the most basic and fundamental policy of civilian production andliving in human society and land circulation issue should be given primary importance amongpriorities. Currently, there are some problems, contradictions in land circulations issues, someof those problems and contradictions are even quite serious. For instance, in some cases,farmers’ rights and interests are not well protected after farmland expropriations which lead toa collision between farmers and governments, enterprise. The most fundamental of landcirculation is the guarantee and protection of the farmers’ rights because farmers havecollective ownership of farmlands, thus farmers should have the initiative to decide whetherto transfer and should have the initiative to set transfer prices. The reality of land circulation,however, is the opposite. The market of farmland circulation is led by the government.Farmers could not know exactly what is the reasonable transfer price in land circulation.There is a serious information asymmetry problem between governments and farmers.Theregulations of economical and intensive use of land has been published in June,2014. It ismentioned that the supply of various compensated use of land should Implement the marketallocation principle, promoting the use status of farmlands by using land rent and priceleverage. Hence, the issue of land pricing needs to be settled urgently.This dissertation compares various traditional land pricing methods, analyses and pointsout the existing defects and unreasonable aspects of those traditional land pricing methods.For example，the most generally accepted conditional capitalized method and standard redeemed part pricing method all ignored contingent income of land. During the process ofland transfer, it needs take consideration not only the earnings from the crops, but also thecontingent income from lands which are normally considered as the carrier of other activitiesand such contingent income could be deemed as the value of option. Accordingly, thecomhensive value of land could contain two parts which are the earnings from the crops andthe contingent income. When compares the land price index and the real estate price index,many researchers have found that the correlation between those two price index were veryhigh, thus the land could be regarded as the American call option on real estate price. Afterthe comparison of the value of such option and the value of land, the option value account formore than fifty percent of land value, which means farmers have lost more than half of therights and interests when they transfer their lands. This dissertation could has more realisticguiding significance on the revise and improve of land pricing and Land requisitioncompensation, etc.