Presale of Real Estate in Real Options Framework Case study: Tehran’s residential real estate

Presale - sale before completion - is used commonly in many countries especially in Asian ones. One of the important aspects of its popularity is reducing bankruptcy, marketing and liquidity risks for developers and price volatility risk for both developers and buyers. This paper tries to calculate the fair down payment in real option framework in Tehran’s residential real estate. According to our findings, monthly data (2006:06-2011:04) of house prices follows Geometric Brownian Motion (GBM). We modeled and formalized four-payment presale contract with penalties in real option framework to calculate fair down payment based on three methods: Black-Scholes, Monte Carlo simulation and lattice.