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

Posted: 6 Jun 2013

See all articles by Andrianos E. Tsekrekos

Andrianos E. Tsekrekos

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

George F. Kanoutos

Ace - Hellas S.A.

Date Written: June 5, 2013

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: Real options, urban land values, Greek real estate, Development

JEL Classification: G13, R33

Suggested Citation

Tsekrekos, Andrianos E. and Kanoutos, George F., Real Options Premia Implied from Recent Transactions in the Greek Real Estate Market (June 5, 2013). Journal of Real Estate Finance and Economics, Vol. 47, No. 1, 2013, Available at SSRN: https://ssrn.com/abstract=2274864

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

George F. Kanoutos

Ace - Hellas S.A. ( email )

6 Aigaiou Pelagous Str.
Agia Paraskevi, 15341
Greece
2106068617 (Phone)

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