Valuation principles which have been found useful in the study of stock options are applied to the pricing of options to purchase real property ('land options'). There is a close similarity between fixed land options and call options on common stock. This similarity is used to saggest ways in which fixed land options might be valued. More complex land options (step-up, full credit and renewable) are also analyzed.
Get full access to this article
View all access options for this article.
References
1.
Black, F. and Scholes, M. (1973). The Pricing of Options and Corporate Liabilities . Journal of Political Economy, Vol. 81: 637-654.
2.
Cooley, P.L. and Heck, L.J. (1981). Significant Contributions to Finance Literature . Financial Management, Vol. 10: 23-33.
3.
Galai, D. (1977). Characterization of Options. Journal of Banking and Finance, Vol. 1: 373-385.
4.
Geske, R. (1977). The Valuation of Corporate Liabilities as Compound Options. Journal of Financial and Quantitative Analysis, Vol. 12: 541-552.
5.
Geske, R. (1979a). The Valuation of Compound Options. Journal of Financial Economics, Vol. 7: 63-81. 1.
6.
Geske, R. (1979b). A Note on an Analytical Valuation Formula for Unprotected American Call Options on Stocks with Known Dividends. Journal of Financial Economics, Vol. 7: 375-380.
7.
Kummer, D.R. and Schwartz, A.L. (1980). Valuing Real Property Purchase Options. The Real Estate Appraiser and Analyst, Vol. 46: 13-17.
8.
Merton, R.C. (1973). Theory of Rational Option Pricing. Bell Journal of Economics and Management Science, Vol. 4: 141-183.
9.
Merton, R.C. (1974). On the Pricing of Corporate Debt: The Risk Structure of Interest Rates. Journal of Finance, Vol. 29: 449-470.
10.
Roll, R. (1977). An Analytic Valuation Formula for Unprotected American Call Options on Stocks with Known Dividends. Journal of Financial Economics, Vol. 5: 251-258.
11.
Rubinstein, M.E. (1976). The Valuation of Uncertain Income Streams and The Pricing of Options. Bell Journal of Economics, Vol. 7: 407-425.
12.
Smith, C.W. (1976). Option Pricing: A Review. Journal of Financial Economics, Vol. 3: 3-51.
13.
Whaley, R.E. (1981). On the Valuation of American Call Options on Stocks with Known Dividends. Journal of Financial Economics, Vol. 9: 207-211. 1.
14.
Whaley, R.E. (1982). Valuation of American Call Options on Dividend-Paying Stocks. Journal of Financial Economics, Vol. 10: 29-58.
