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RISKEXPLICIT APPRAISAL A SLICED INCOME APPROACH

RISKEXPLICIT APPRAISAL A SLICED INCOME APPROACH Property investment risk is traditionally accounted for by valuers in a riskadjusted discount rate approach, although this term, popular in mainstream finance, is rarely used. This paper shows that RADR is but one of several risk adjustment techniques that may be employed within an explicit cash flow framework. It explains how a certainty equivalent technique may be used in an objective manner by use of standard deviation analysis, and develops a new technique for use in the UK prime market known as the sliced income approach. The paper goes further by setting risk adjustment deterministic techniques within the wider context of risk analysis and compares a simple probabilistic approach and sensitivity analysis with these techniques for use in property investment appraisal. A case study is employed in illustrations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Valuation Emerald Publishing

RISKEXPLICIT APPRAISAL A SLICED INCOME APPROACH

BAUM, ANDREW
Journal of Valuation , Volume 5 (3): 18 – Mar 1, 1987
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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0263-7480
DOI
10.1108/eb008011
Publisher site
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Abstract

Property investment risk is traditionally accounted for by valuers in a riskadjusted discount rate approach, although this term, popular in mainstream finance, is rarely used. This paper shows that RADR is but one of several risk adjustment techniques that may be employed within an explicit cash flow framework. It explains how a certainty equivalent technique may be used in an objective manner by use of standard deviation analysis, and develops a new technique for use in the UK prime market known as the sliced income approach. The paper goes further by setting risk adjustment deterministic techniques within the wider context of risk analysis and compares a simple probabilistic approach and sensitivity analysis with these techniques for use in property investment appraisal. A case study is employed in illustrations.

Journal

Journal of Valuation – Emerald Publishing

Published: Mar 1, 1987

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