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ARBITRAGE AND INVESTMENT IN COMMERCIAL PROPERTY
Author(s) -
Ward C.W.R.
Publication year - 1982
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1982.tb00975.x
Subject(s) - arbitrage , renting , valuation (finance) , equity (law) , economics , investment (military) , business , microeconomics , financial economics , finance , actuarial science , law , politics , political science
Leases in commercial property in the UK usually allow for the rent to be revised at fixed intervals throughout the contract. This feature complicates the valuation of financial investment in commercial property because the income has contractual fixed compments as well as an equity‐type variability. This paper presents a valuation method based on an arbitrage pricing approach to the occupancy of a property. The limitations of this method can be found in the inapplicability to observed rental contracts which limit rent revision to ‘upwards‐only’ changes. From this characteristic, the method based on option pricing is proposed and the application of the model to conventional commercial leaseholds is demonstrated.