This paper provides an analytical framework for real estate development options. It has two contributions to the literature in real options in real estate development. First, the paper provides an extensive literature review on the real options litera...
This paper provides an analytical framework for real estate development options. It has two contributions to the literature in real options in real estate development. First, the paper provides an extensive literature review on the real options literature on real estate development. The review contains both discrete and continuous models, providing insights on domestic and foreign studies. Second, the paper has a new strategy for the derivation of the value of a real estate development option. The options valuation in real estate development is expected to distinguished from the option valuation in traditional finance, as real estate developments have unique features that make real estate investments different from those in corporate finance. Therefore, the paper proposes an underlying asset process, which allows negative cashflow from a real estate development project.