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Paper eres2005_212:
Monte Carlo Simulations for Real Estate Valuation

id eres2005_212
authors Jani, Elion; Martin Hoesli and André Bender
year 2005
title Monte Carlo Simulations for Real Estate Valuation
source Book of Abstracts: 2005 European Real Estate Society conference in association with the International Real Estate Society
summary In this paper, we use the adjusted present value methodology with Monte Carlo simulations in a real estate valuation context. Monte Carlo simulations make it possible to incorporate the uncertainty in the components of future cash flows and in the discount rate. We use empirical data to extract information about the probability distributions of the various parameters. In particular, we propose a simple model to compute the appropriate discount rate. We forecast the term structure of interest rates using a Cox Ingersoll Ross (1985) model, and then add a premium that is function of both the real estate market and of selected hedonic characteristics of the buildings. Our empirical results suggest that the central values of our simulations are close to the hedonic values. Not surprisingly, the confidence intervals are found to be most sensitive to the discount rate and the exit cap rate being used.
series ERES:conference
type normal paper
discussion No discussions. Post discussion ...
ratings
session Session E2
last changed 2008/11/01 09:47
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