Real Options Premia Implied from Recent Transactions in the Greek Real Estate Market

Andrianos Tsekrekos and George Kanoutos

The Journal of Real Estate Finance and Economics, 2013, vol. 47, issue 1, 152-168

Abstract: This research is the first to examine the empirical predictions of a real option-pricing model on market values from the realty market of a Euro area country, namely Greece. Using a manually collected sample of land and property transaction prices, we demonstrate that, a model which incorporates the option to wait to develop land has explanatory power on observed prices over and above the intrinsic value from a simple discounted cash flow (DCF) approach. Recent land transactions in our sample seem to reflect a premium for the option to wait (‘real option premium’) that can be as high as 26.66%–52.38%, especially in the west and north suburbs of Athens. Estimates of annual volatility for specific properties, as implied by transaction prices, are found to range from 15% to 21%. Copyright Springer Science+Business Media, LLC 2013

Keywords: Real options; Urban land values; Greek real estate; Development; G13; R33 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11146-011-9350-z

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