A note for appraisers on option valuation

The mathematical complexity of options makes the valuation and use of these instruments intimidating for most individuals. While real estate appraisers may initially share this response, appraisers' experience estimating replacement costs gives them a significant advantage in understanding the...

Full description

Saved in:
Bibliographic Details
Published in:The Appraisal journal 2008-06, Vol.76 (3), p.270
Main Authors: Finch, J. Howard, Jones, Travis L, Weeks, H. Shelton
Format: Article
Language:English
Subjects:
Appraisers
Asset acquisitions
Cost analysis
Cost estimates
Discounted cash flow
Investments
Methods
Practice
Profits
Put & call options
Real estate appraisal
Real estate appraisers
Real property
State court decisions
Stock prices
Treasuries
Treasury bills
Valuation
Valuation methods
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The mathematical complexity of options makes the valuation and use of these instruments intimidating for most individuals. While real estate appraisers may initially share this response, appraisers' experience estimating replacement costs gives them a significant advantage in understanding the valuation of these securities. In this article the valuation of an option to buy land is demonstrated using a method based on the principle of substitution. The examples show how the value of the option to buy may be deduced by creating an alternative portfolio that provides an identical expected payoff. In light of the increasing recognition of options in the practice of real estate, this article should be of interest to real estate appraisers and other professionals. [PUBLICATION ABSTRACT]
ISSN:0003-7087