Real Estate Market

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Subject to legal limitations, the owner of undeveloped real estate can determine both the date and density at which to develop his property. Alternatively, he can abandon his property. The value of these options depends partly on the stochastic evolution through time of the operating revenues and construction costs of developed property.In this book the option pricing problem is solved analytically and numerically for the optimal data and density of development, the optimal date of abandonment, and the resulting market values of the developed and undeveloped properties.The financial crisis showed, once again, that neglecting real estate booms can have disastrous consequences. In this work we spell out the circumstances under which a more active policy agenda on this front would be justified. Then, we offer tentative insights on the pros and cons as well as implementation challenges of various policy tools that can be used to contain the damage to the financial system and the economy from real estate boom-bust episodes.