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- Real Option In Real Estate Application And The Samuelson Mckean Model 1 (86.56 KiB) Viewed 49 times
Real option in real estate application and the Samuelson-McKean model
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Real option in real estate application and the Samuelson-McKean model
Real option in real estate application and the Samuelson-McKean
model
QUESTION 5 (10 points) a) Give two examples of real options that can be present in real estate applications, and motivate why they constitute real options. (4p) b) Describe how the binomial model is built, and how it can be used to value real options. (3p) c) In the Samuelson-McKean model two important parameters are the hurdle value (or the critical value) and the option elasticity. Explain how the value of these parameters influences the value of the real option in the Samuelson-McKean model. (3p)
model
QUESTION 5 (10 points) a) Give two examples of real options that can be present in real estate applications, and motivate why they constitute real options. (4p) b) Describe how the binomial model is built, and how it can be used to value real options. (3p) c) In the Samuelson-McKean model two important parameters are the hurdle value (or the critical value) and the option elasticity. Explain how the value of these parameters influences the value of the real option in the Samuelson-McKean model. (3p)