Utility indifference net present value (UNPV) method is a risk assessment method proposed by Miyahara , which is based on utility indifference pricing theory and net present value theory. Setting utility function as that of an exponential type, we formulate a special type of UNPV which is called a risk sensitive value measure (RSVM). With RSVM, the risk to investors caused by uncertainty about future cash inflow as well as scale effect which influence the valuation of investments has been investigated. In this paper, we adopt RSVM method and mean-variance (MV) approach into Hong Kong REITs to observe the advantage and effectiveness of RSVM method. In particular, we focus on the performance of risk-sensitivity parameter and scale effect parameter in RSVM and MV. Then, as a new index of risk valuation, the inner rate of risk aversion (IRRA) is defined and it is shown that the index is useful for rating REITs and measuring scale effect of REITs. Finally, we treat the rating valuation of Hong Kong REITs investment by RVSM method under consideration of default risk. Then, the IRRA also effectively works on the decision-making of investment, choosing and rating of the commodities to invest in consideration of default risk.
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