Analysis and Applications of Real Estate Investment Decision Based on Real Options

When making the investment decision of real estate project, applying traditional method may miss the opportunity or affect the rationality of decision-making, while real option method (ROV method) can avoid this problem. When applying ROV method, the author considered the current real estate market bubble and took the bubble factor into account the B-S option pricing model, then by calculating the indexes of the bubble, revise the B-S option pricing model. Finally, a case study was conducted to use the three methods to calculate and compare: use the NPV method to calculate and the value is 22.37 million, use the B-S option pricing model to calculate and the value is 48.09 million, use the revised B-S option pricing model to calculate and the value is 42.05 million. The results show that the last method considering bubble factor is closer to the real value and this value is much larger than the net present value. Developers can delay the development of this project. Therefore this method enables developers to make more scientific and rational decision.