Empirical testing of real option-pricing models using land price index in Japan

The purpose of this research is to examine the way uncertainty plays a role in built land prices. This paper provides basic real option pricing models of land prices on the demand side in central Tokyo. The model in this research analyzes micro land prices covering individual lot data provided by the Land Price Index. Since land prices are determined by both macro economic environment and micro lot-specific attributes, this paper utilizes both time-series economic data and cross-sectional lot-specific data. The model incorporates both time-series (macro) and cross-sectional (micro) data including uncertainty terms. In addition to the total uncertainty in asset prices, this research also gives some ideas of cross-sectional uncertainty in land price variations by utilizing cross-sectional amenity variables. These cross-sectional and time-series variables including these two uncertainty variables are pooled and the OLS method is conducted. The data set consists of 4,368 land price data from 1985 through 2000. The results from the option-based models favor the application of the real option theory in land prices. The total uncertainty with respect to built asset return has a substantial effect on increasing land prices, which implies that an increase in uncertainty leads to an increase in land prices.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Urban Studies and Planning.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2000

Author dc:creator

• Yamazaki, Ritsuko, 1970-

Advisor dc:contributor.advisor

• Timothy Riddiough.

• Urban Studies and Planning.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/70732

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/70732