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



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%.


Real options Urban land values Greek real estate Development 

JEL Classification

G13 R33 



Thanks are due to an anonymous referee, Steven R. Grenadier (the editor), Athanasios Episcopos, Georgios Leledakis, Leonidas Rompolis, Thodoris Theodorakopoulos from RE/MAX Hellas, G. K. from Aspis Real Estate and Panayiotis Stamatis from Denaro Real Estate, as well as participants at the Empirical Finance session of the 9th HERCMA conference in Athens, Greece and the 2008 international conference on Applied Business and Economics in Thessaloniki, Greece. Usual disclaimers apply.


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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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