Pricing options(calls and puts)in general is a complex issue,given the assumptions that one has to make and sometime markets are asymmetric.McKean-Samuelson(1965)is the first model that prices a perpetual American option on a vacant land.Years later,Black and Scholes(1973)create a formula to price a call option on corporate liabilities.In the context of real estate discipline,it seems that there is no formula that prices a call on commercial building,specifically office building on a vacant land.The contribution of this study is exactly responding to the latter statement.The results illustrate that the formula of a commercial building on a vacant land is simply two call options—similar to option straddle.
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