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

Article

DOI: 10.1007/s11146-011-9350-z

Cite this article as:
Tsekrekos, A.Ε. & Kanoutos, G. J Real Estate Finan Econ (2013) 47: 152. doi:10.1007/s11146-011-9350-z

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%.

Keywords

Real options Urban land values Greek real estate Development 

JEL Classification

G13 R33 

Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Department of Accounting & FinanceAthens University of Economics & BusinessAthensGreece
  2. 2.Ace-Hellas SAAthensGreece

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