Pricing model for commercial real estate rent based on real option

Author

He Wei-ming ; Li Zhong-fu

Author_Institution

Sch. of Manage., Harbin Inst. of Technol., Harbin, China

fYear

2011

fDate

13-15 Sept. 2011

Firstpage

1111

Lastpage

1116

Abstract

In order to avoid business risks caused by the fluctuation of the commercial real estate rents, real option theory is applied in this paper to solve the problem of commercial real estate rent. First of all, this paper turns uncertain volatility of the commercial real estate rent into the particular random process which could describe its mathematical characteristics with some parameters; Secondly, this paper uses Monte Carlo simulation and Asian options to set up a pricing model of the commercial real estate rents; Finally it calculates the specific parameters by analyzing the fluctuation of Grade A office building rent in the last ten years in Hong Kong, and reveals the impact of the pricing model on commercial real estate rents. The results show that on the premise of guaranteeing lessors and tenants´ interest, the application of real option in commercial real estate rent could reduce the business risk, and deduce the rent fluctuation.

Keywords

Monte Carlo methods; pricing; random processes; real estate data processing; Asian options; Grade A office building rent; Hong Kong; Monte Carlo simulation; commercial real estate rent; pricing model; random process; real option theory; value-at-risk; Analytical models; Indexes; Industries; Monte Carlo methods; Numerical models; Portfolios; Reactive power; Asian option pricing model; Monte Carlo simulation; commercial real estate rent; real option;

fLanguage

English

Publisher

ieee

Conference_Titel

Management Science and Engineering (ICMSE), 2011 International Conference on

Conference_Location

Rome

ISSN

2155-1847

Print_ISBN

978-1-4577-1885-4

Type

conf

DOI

10.1109/ICMSE.2011.6070095

Filename

6070095