Option-game analysis of real estate investment decision

The option-game theory is introduced to solve the potential problems in traditional theory about real estate investment decision in this paper. Real-option theory takes potential value of a project into full account with option pricing approach, can solve such problems as uncertainty, irreversibility and flexibilities of real estate investment; meanwhile game theory suits for resolving interaction effects and seeking for equilibrium strategies among competitive firms. Firstly, static option-game analysis is performed for multiple competitors firms in real estate market of complete competition, the hitting time function and the optimal investment time corresponding to the optimal strategy are obtained through concrete theoretical deduction and analysis. Also, dynamic option-game analysis is performed for leader and follower in uncompetitive real estate market, their value functions are presented and the optimal equilibrium development quantities are given based on Stackeberge equilibrium model. Furthermore, a simple example and detailed analyses are given to deepen the understanding of the above models. Finally, further discussions of analysis results are made and some meaning conclusions are presented.