Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/32822
Title: Analysis of the viability of an urban renewal project under a risk-based option pricing framework
Authors: Hui, ECM 
Ng, IMH
Lo, KK
Keywords: Hong Kong
Models
Monte Carlo method
Pricing
Risk management
Urban development
Issue Date: 2011
Publisher: American Society of Civil Engineers
Source: Journal of urban planning and development, 2011, v. 137, no. 2, p. 101-111 How to cite?
Journal: Journal of urban planning and development 
Abstract: Under real option theory, property developers are able to determine the optimal timing of executing their investment projects on a risk-neutral basis. The writers adopted the Samuelson-McKean model to value the embedded option of the largest urban redevelopment project in Hong Kong-Kwun Tong Town Center-for its feasibility study. Then housing prices were simulated by using the Monte Carlo simulation. This paper has made a contribution to the real estate investment literature in tracing the plausible optima and adverse outcomes, particularly in situations in which perfect information is not available. The estimated mean value of the project is approximately $31.14 billion, which is around 15% lower than the required value, i.e., the hurdle value of $36.65 billion. The finding has revealed that immediate implementation of the Kwun Tong redevelopment project is unfavorable from a financial standpoint because the expected return is insufficient to offset the cost of uncertainties.
URI: http://hdl.handle.net/10397/32822
ISSN: 0733-9488
EISSN: 1943-5444
DOI: 10.1061/(ASCE)UP.1943-5444.0000047
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