Risk assessment in estimating the capitalization rate

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Abstract

In estimating the market value of a property by income approach, the determination of the capitalization rate is ordinarily conducted through analogical process. The procedure is based on the identification of price-earnings ratio of similar investments. The analogy refers to the risk and the duration of the investment. However, in all cases there still remains a rate of uncertainty that significantly affects the final estimation of the property. This paper proposes a methodology which removes any uncertainty when evaluating the cap-rate. The aim is achieved through the combination of the formal logic of the Ellwood’s model and the Real Options Analysis. The algorithm developed has been applied to a sample relative to 57 Italian cities, considering annual prices from 1967 to 2012. The results highlight the validity of the model and the easiness of use.

Autore Pugliese

Tutti gli autori

  • Manganelli B , Morano P , Tajani F

Titolo volume/Rivista

WSEAS TRANSACTIONS ON BUSINESS AND ECONOMICS

Anno di pubblicazione

2014

ISSN

1109-9526

ISBN

Non Disponibile

Numero di citazioni Wos

Nessuna citazione

Ultimo Aggiornamento Citazioni

Non Disponibile

Numero di citazioni Scopus

8

Ultimo Aggiornamento Citazioni

2017-04-22 03:20:59

Settori ERC

Non Disponibile

Codici ASJC

Non Disponibile