Application of Option-Based Pricing Model in Investment Decision

Abstract:

The methodology is proposed to price the land in China based on real options model. The results from the option-based model in this research favor the application of the real option theory in land prices and have important role on investment decision. The results show the following conclusions: Firstly, the empirical results show the uncertainty with respect to built asset return has a substantial effect on increasing land prices, which is only explained by the option theory. Secondly, the asset price and the size of city have positive role on increasing the land price from. Thirdly, the risk-free interest rate affects option prices in two opposite direction. Lastly, information of the previous period has a very strong effect on the next period's land price.

• Periodical: Advanced Materials Research (Volumes 926-930)
• Pages: 3762-3765
• DOI: https://doi.org/10.4028/www.scientific.net/AMR.926-930.3762
• Online since: May 2014
• Authors: Yong Gang Xue*, Ming Li Zhang
• Keywords: Investment Decision, Pricing Model, Real Options

References

[1] Ritsuko Yamazaki. Journal of Property Investment & Finance, Vol. 19(2001), pp.53-72.

[2] Tien Foo Sing, Kanak Patel. Journal of Property Investment & Finance, Vol. 19(2001), pp.535-553.

[3] Jianfu Shen, Frederik Pretorius. Journal of Property Investment & Finance, Vol. 31(2013), p.418–440.

[4] Dmitriy V. Chulkov, Mayur S. Desai. Information Management & Computer Security, Vol. 16(2008), pp.324-335.

[5] Ardjan Gazheli, Luca Di Corato. Agricultural Finance Review, Vol. 37(2013), pp.507-525.

[6] Graeme Guthrie. Pacific Accounting Review, Vol. 25(2013), pp.259-277.

[7] Jeffrey N. S, Mukunthan S. Journal of Strategy and Management, Vol. 4(2011), pp.155-171.

[8] Dulat Tubetov. Agricultural Finance Review, Vol. 73(2013) pp.426-457.