Applying Monte Carlo Simulation On Risk Evaluation Of Investing LD Real Estate Project

The real estate industry has now been widely acknowledged as the pillar of economy in China for its profound influence on the fields of investment and consumption.However,with the development of the industry and the increasing complexity of the whole socio-economical environment,the real estate industry in China is now facing a bigger threat from various risk sources than ever before.Thereby,improving the risk consciousness and the ability of handling risk is becoming an emergent and critical task for all the participants in the industry.The objective of this dissertation is to find a more practical and effective risk evaluation method that is different from the traditional financial evaluation methods currently adopted by the decision makers in Chinese real estate industry.This dissertation focuses on one risk evaluation method—the Monte Carlo simulation method—and its application in investing real estate development projects.The research methodology combines both theoretical and empirical analysis.The methodology aims to comprehensively evaluate the applicability of the Monte Carlo simulation method from practical and theoretical perspective as well as the outcomes of the comparison with traditional financial evaluation methods.In other words,the first two sections of this dissertation generalize the main characteristics of Chinese real estate industry as well as the basic theories of risk evaluation and its development in China.After that,the dissertation analyzes and compares the Monte Carlo simulation method with the traditional methods.Following this,the fourth section presents the whole process of the Monte Carlo simulation model based on an actual real estate development project.The last section of this dissertation illustrates the main statistical outcomes of the risk analysis and provides the evaluation of these outcomes.Based on the results from the empirical study,the section presents the conclusion of the comparison of the practical performance between the Monte Carlo simulation method and traditional financial evaluation methods.To conclude,on the basis of the outcomes from theoretical analysis and empirical study,the Monte Carlo simulation method can be fairly well applied into Chinese real estate industry as a formal risk evaluation method.By adopting the Monte Carlo simulation in analyzing the NPV and IRR of LD project,the profitability and the risk resistance ability of LD project are thoroughly presented.Comparing to the traditional methods,using Monte Carlo simulation provides more abundant and valuable information to the decision makers of LD project.However,the main limitation of this method comes from the requirements on the operation process,which requires further studies and operational results gained from the real estate industry.