Property Derivatives for Managing European Real‐Estate Risk

Abstract

Although property markets represent a large proportion of total wealth in developed countries, the real-estate derivatives markets are still lagging behind in volume of trading and liquidity. Over the last few years there has been increased activity in developing derivative instruments that can be utilised by asset managers. In this paper, we discuss the problems encountered when using property derivatives for managing European real-estate risk. We also consider a special class of structured interest rate swaps that have embedded real-estate risk and propose a more efficient way to tailor these swaps.

Pricing Defaulted Italian Mortgages

“…The stochastic dynamics of prices are described by an exponential Ornstein-Uhlenbeck (EOU) process as proposed in Fabozzi et al (2010) and Perelló et al (2008). 5 Both papers provide strong support for this model.…”

Modeling loss given default with stochastic collateral

“…Crawford and Fratantoni (2003) suggest ARIMA-and GARCH-models for a realistic mapping of house price indices. The recent work of Fabozzi et al (2010) again stresses the need of a mathematical model that incorporates serial correlation and provides new empirical evidence. The model the authors suggest ties in with the approaches of Lo and Wang (1995) and Jokivuolle (1998) who deal with other serially correlated assets.…”

What Drives Contagion in Financial Markets? Liquidity Effects versus Information Spill‐Over

“…The collapse of the well‐established investment bank Lehman Brothers in September 2008 marked the starting point of the US subprime mortgage crisis, which progressed to a global financial crisis. Triggered by the threat of extensive defaults on subprime mortgages, markets have suffered catastrophic losses in the subsequent years (Fabozzi et al ). Even at its early stages, markets feared that the subprime crisis might spill over into other sectors of the economy (see, e.g., Stein, ; Hamalainen et al, ).…”