The pricing of real options in discrete time models

Abstract

This paper proposes a discrete time real options model with time-dependent and serial correlated return process for a real estate development problem with waiting options. Based on a Martingale condition, the paper claims to be able to relax many unrealistic assumptions made in the typical real option pricing methodology. Our real option model is a new one without assuming the return process as``Ito Process'', specifically, without assuming a geometric Brownian motion. We apply the model to the condominium market in Tokyo metropolitan area in the period 1971-1997 and estimate the value of waiting to invest in 1998-2007. The results partly provide realistic estimates of the parameters and show the applicability of our model. W V max EV t À I expÀ&t 1X2subject to (1.1). s discount rate.The research register for this journal is available at

Research on Secondary Spectrum Trading Mechanisms Based on Technical and Market Changes

“…In the basic assumption during the experiments, as time goes by, the demand for spectrum resource increases by a Geometric Brownian Motion (GBM)-based stochastic process 2 . This model was adopted because the GBM is often used in financial economics for expected option values [15,16]. Note that increasing demand for spectrum resource is not an output variable but rather the increasing value of the spectrum resource as the spectrum demand increases.…”