Derivatives
Options Theory & Overbuilding
It appears that option theory explains well why periodic overbuilding is both inevitable and, at the same time, rational. While other theories (e.g., the DiPasquale-Wheaton 4-Quadrant Diagram) often […]
Archive
Reader level: Advanced
Derivatives
Why the Option Valuation works in Real Estate
Is it worth buying land for a development project if the business plan shows a negative NPV?The initial reaction is “no,” but the decision is not that simple. […]
Real Estate Investments
Hazard Function & Yield Degradation
Fixed-income assets come with default risk. For example, the default probability statistics for commercial mortgages by years since loan origination look like this: Source: Commercial Real Estate Analysis […]
Real Estate Investments
Loan Prepayment Option Valuation
For a real estate investor, it’s important to understand how valuable a loan refinancing option is, which can be assessed using the Black-Scholes financial options pricing model. For […]
Real Estate Investments
After Tax Discount Rate in RE
How Do Government Co-Financing Incentives Influence Real Estate Purchase Decisions? How Do Such Incentives Affect the Value of Real Estate for Beneficiaries? In practice, determining the correct discount […]
Risk
Logistic Regression
Every important decision boils down to a “yes” or “no” choice – should I buy, or not buy? Should I offer a payment plan, or not? Should I […]
Real Estate Investments
Depreciation Tax Shield in Real Estate
When investing in real estate, significant attention is given to the tax savings derived from depreciation (Depreciation Tax Shield – DTS), and this benefit becomes even more valuable […]