The Application Of Real Options Based On The Tree Method In The Real Estate Investment

Real estate item is a process of high investment、high yield and high risk. It is very important for us to find a tool which could evaluate the real estate item. Because that there are so many factors that can affect the value of the real estate item. such as risk of interest rate.So it is very difficult to evaluate the real estate item, because of the huge uncertainty of the real estate investment. There are lots kinds of traditional assessment methods of the real estate investment, but all of them have a common problem:they neglect the flexibility of the real options and lead to huge economy lose.Because of the defect of the traditional methods, the real options is a better tool to evaluate the items. It is very suit to analyze the items of high uncertainty. The real options helps the investors to make better decisions.This thesis has the following main aspects:(1) We reviewed the traditional assessment methods of the Real estate item and compared the real option and these methods.(2) Describing the history of the real options and the decision-making model of the real estate investment.(3) Introducing some models:B-S model,binomial tree and trigeminal tree method. Specially, the trigeminal tree method of the compound real option.(4) Making some research of some specific cases by using the real options.The meaning of this thesis is:Because the traditional assessment methods are not so good, The real options have considered the flexibility of the investment.so it is more scientific to use the real options method to analyze the real estate item. In the end of this thesis, we prospect the future development of the real options.