The classical model of land value as a "real option" is what type of option model?
A) A finite-maturity European put option.
B) A finite-maturity European call option.
C) A perpetual American put option.
D) A perpetual American call option.

Question

Quizplus · Accepted Answer

The classical model of land value as a "real option" is considered a perpetual American call option because it gives the landowner the right, but not the obligation, to develop the land at any time, similar to how an American call option provides the option to buy an asset at any time up to and including the expiration date, and in this context, there is no specific expiration date.

The Classical Model of Land Value as a "Real Option