Research & Application On The Application Of Real Option Approach To Investment Decision-making In Real Estate

Analysis of real estate investment and decision-making is an important process in the implement of real estate project, which directly determines the result of investment.A prevalent analysis method called Net Present Value method(NPV)is being used currently.This method has notable disadvantages as well as advantages. Real Option method(RO) is a new approach to study project investment and becomes more and more mature.This paper combines nowaday fruits of RO theory and apply it to the analysis of real estate investment and decision-making so as to remedy the defect of traditional methods. The interdependence and reciprocity of the NPV method and the RO method makes the analysis result more impersonal and more scientific.This thesis reviews the origin and development of RO and explains the meaning and idea of it. Then, this article introduces the application of NPV in the analysis of real estate investment and points out the deficiencies in it.In succession, the application of RO field is particularized by discussing the theory basis,value character, evaluation model and sensitivity of factors,and the result of the using of the two methods(NPV&RO) in the analysis of real estate investment is compared and narrated by illustrating examples.The limitation and disadvantages of application of RO are stated at length.As a new solution to real estate investment analysing, the RO method is effective although some aspects of using it are still immature.