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This book brings together the latest concepts and models in real-estate derivatives, the new frontier in financial markets. The importance of real-estate derivatives in managing property price risk that has destabilized economies frequently over the last hundred years has been brought into the limelight by Robert Shiller. In spite of his masterful campaign for the introduction of real-estate derivatives, these financial instruments are still in a state of infancy. This book aims to provide a state-of-the-art overview of real-estate derivatives, covering the description of these financial products, their applications, and the most important models proposed in the literature. In order to facilitate a better understanding of the situations when these products can be successfully used, ancillary topics such as real-estate indices, mortgages, securitization, and equity release mortgages are also discussed. The book examines econometric aspects of real-estate index prices time series and financial engineering non-arbitrage principles governing the pricing of derivatives. The emphasis is on understanding the financial instruments through their mechanics and comparative description. The examples are based on real-world data from exchanges or from major investment banks or financial houses in London. The numerical analysis is easily replicable with Excel and Matlab.
The author provides a state-of-the-art overview of real-estate derivatives which covers the description of these financial products, their applications, and the most important models.
Property derivatives have the potential to revolutionize real estate - the last major asset class without a liquid derivatives market. The new instruments offer ease and flexibility in the management of property risk and return. Property funds, insurance companies, pension and life funds, speculators, hedge funds or any asset manager with a view on the real estate market can apply the new derivatives to hedge property risk, to invest synthetically in real estate, or for portfolio optimization. Moreover, developers, builders, home suppliers, occupiers, banks, mortgage lenders and governmental agencies can better cope with their real estate exposure using property derivatives. This book is a practical introduction to property derivatives and their numerous applications. Providing a comprehensive overview of the property derivatives market and indices, there is also in-depth coverage of pricing, hedging and risk management, which will deepen the readers understanding of the market's mechanisms. Covering both the theoretical and practical aspects of the property derivatives markets; this book is the definitive reference guide to a new and fast-growing market.
Bachelor Thesis from the year 2011 in the subject Economics - Finance, grade: 1.8, Fachhochschule des bfi Wien GmbH, language: English, abstract: Research Question: The main research question of this paper is: "How do property derivatives work and which advantages do they have?" This question is answered in the chapters two to five where the necessary parts to establish property derivatives and their advantages in comparison with other real estate investments are mentioned. The secondary questions are: "Is there a property derivatives market in Austria or even a potential?", and "For whom can a property derivative make sense and where is the state-of the-art in property derivative knowledge in Austria?" The first question is answered in chapter six and seven. The method to find out the state-of the-art of knowledge is identified in chapter seven.
Introduces three innovative concepts and associated financial instruments with the potential to revolutionize real estate finance Covers methodological issues pertaining to real estate risk analysis factors Proposes concepts and methods for identifying, pricing and trading these new property rights. Essential reading for all real estate, finance and smart technology researchers and professionals
This book brings together the latest concepts and models in real-estate derivatives, the new frontier in financial markets. The importance of real-estate derivatives in managing property price risk that has destabilized economies frequently over the last hundred years has been brought into the limelight by Robert Shiller. In spite of his masterful campaign for the introduction of real-estate derivatives, these financial instruments are still in a state of infancy. This book aims to provide a state-of-the-art overview of real-estate derivatives, covering the description of these financial products, their applications, and the most important models proposed in the literature. In order to facilitate a better understanding of the situations when these products can be successfully used, ancillary topics such as real-estate indices, mortgages, securitization, and equity release mortgages are also discussed. The book examines econometric aspects of real-estate index prices time series and financial engineering non-arbitrage principles governing the pricing of derivatives. The emphasis is on understanding the financial instruments through their mechanics and comparative description. The examples are based on real-world data from exchanges or from major investment banks or financial houses in London. The numerical analysis is easily replicable with Excel and Matlab.
The paper reviews the development, structure and trade of past real estate equity hedging instruments. The reviewed products represent a wide array of real estate derivatives, covering multiple property types, index methodologies and trading domains. Based on a series of interviews with leading product developers, market makers, traders and scholars, the paper examines and defines the unique features of the different products and analyzes their value proposition, market conditions and performance. In order to gain an overall perspective on the prospects of real estate derivatives, the paper discusses types of market demand for real estate investing and hedging. In this context, we present real estate debt hedging instruments and compare their trade and use with past real estate equity products. In addition, we discuss recent regulatory acts and their influence on trading requirements and costs, market making and players as well as market efficiency. In the last chapter, the paper presents Pure Property, a current real estate hedging solution, marketed by NAREIT and FTSE. We research Pure Property and compare it to past products. The paper points on Pure Property's new concept and its implications on asset valuation, product functionality and trading liquidity. The paper studies the ETF structure of the product and its contribution to arbitrage activity. For the above-mentioned advantages, the paper predicts that Pure Property is likely to establish a liquid, real estate hedging market.
(Cont.) These pricing methods present a basic foundation for investors to price all three types of swap currently being offered by Credit Suisse. In our study, we find that derivatives can provide numerous benefits to real estate investors including low transaction cost, quick execution and short-selling mechanism. These benefits in turn can help investors implement various strategies including hedging against market risk, asset allocation, sector rebalancing, international diversification and portable Alpha. Our research on UK's experience in real estate derivatives as well as our investor survey results in the U.S. and the UK lead us to believe that further initiative and pioneering efforts are critical for the development of the real estate derivatives market. By presenting this study on index forecasting models and pricing methodologies, we hope to increase the awareness and comfort level of investors and thus encourage the proliferation of real estate derivatives.
(Cont.) The US real estate sector is an eight trillion dollar market composed of real estate assets which has been managed until recently without pointed focus on the property specific risk. The size of this market presents a vast opportunity for risk hedging, asset allocation and portfolio rebalancing in a more efficient manner through the use of derivatives.