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

26 Pages Posted: 21 Nov 2011 Last revised: 24 Jun 2013

See all articles by Andrianos E. Tsekrekos

Andrianos E. Tsekrekos

Athens University of Economics and Business - Department of Accounting and Finance

Georgios Kanoutos

Ace-Hellas S.A.

Date Written: November 18, 2011

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 36.50%-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%.

Keywords: Urban land values, real options, Greek real estate

JEL Classification: G13, R33

Suggested Citation

Tsekrekos, Andrianos E. and Kanoutos, Georgios, Real Options Premia Implied from Recent Transactions in the Greek Real Estate Market (November 18, 2011). Journal of Real Estate Finance and Economics, Vol. 47, No. 1, pp. 152-168, 2013., Available at SSRN: https://ssrn.com/abstract=1599408

Andrianos E. Tsekrekos (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Georgios Kanoutos

Ace-Hellas S.A. ( email )

Greece

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