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

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  • Andrianos Tsekrekos
  • George Kanoutos

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%. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Andrianos Tsekrekos & George Kanoutos, 2013. "Real Options Premia Implied from Recent Transactions in the Greek Real Estate Market," The Journal of Real Estate Finance and Economics, Springer, vol. 47(1), pages 152-168, July.
    • Handle: RePEc:kap:jrefec:v:47:y:2013:i:1:p:152-168
    DOI: 10.1007/s11146-011-9350-z
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    Cited by:

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    2. Muhammad Zaim Razak & Haniza Khalid & Azhar Mohamad, 2018. "Speculative Behavior in Vacant Land Development: Evidence for Real Options in Malaysia," The Developing Economies, Institute of Developing Economies, vol. 56(4), pages 245-266, December.

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    More about this item

    Keywords

    Real options; Urban land values; Greek real estate; Development; G13; R33;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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