Real Options Models in Real Estate

Our aim in this thesis is to investigate the usefulness of real options analysis, taking case studies of problems in real estate. In the realm of real estate, we consider the following three problems. First, we consider the valuation and usefulness of presale contracts of condominiums, which can be viewed as similar to call options on condominiums. Secondly, we consider the valuation of farm land from the perspective of land developers, who may think of farm land as being similar to call options on subdivision lots. Third, we consider the valuation of opportunities to install solar panels on properties, in which properties may be considered call options on electricity generators. Through consultation with industry professionals, we created models with the aim of being as realistic as possible without losing analytical tractability. In all three problems, we assess the potential value added through the usage of real options modeling techniques over more traditional techniques, using realistic parameter regimes. We utilize a set of sophisticated mathematical and numerical tools to mathematically model problems. We find that for some problems, real options models only add minimal value to more traditional capital budgeting techniques such as the Net Present Value model. In other problems, we find that real options models lead to significantly different sets of conclusions from those predicted by more traditional techniques.

Name thesis:degree_name

Ph D

Discipline thesis:degree_discipline

Applied Mathematics

Grantor dc:publisher

The University of Western Ontario

Year dc:date.issued

2011

Author dc:creator

• Choi, Jin Won

Advisor dc:contributor.advisor

• Matt Davison

• Real Options
• Real Estate
• Land Development
• Condominiums
• Stochastic Calculus
• Solar Panels

Language dc:language.iso

en_ca

Handle dc:identifier.uri

https://hdl.handle.net/20.500.14721/33581

OAI identifier oai:identifier

oai:uwo.scholaris.ca:20.500.14721/33581