Empirical Testing of Real Option-Pricing Models

Laura Quigg

Journal of Finance, 1993, vol. 48, issue 2, 621-40

Abstract: This research is the first to examine the empirical predictions of a real option-pricing model using a large sample of market prices. The author finds empirical support for a model that incorporates the option to wait to develop land. The option model has explanatory power for predicting transactions prices over and above the intrinsic value. Market prices reflect a premium for the option to wait to invest that has a mean value of 6 percent in the sample. The author also estimates implied standard deviations for individual commercial property prices ranging from 18 to 28 percent per year. Copyright 1993 by American Finance Association.

Date: 1993
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