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Evolution of Real Estate Derivatives and Their Pricing

Fabozzi, Frank J., Shiller, Robert J., Tunaru, Radu (2019) Evolution of Real Estate Derivatives and Their Pricing. Journal of Derivatives, 26 (3). pp. 7-21. ISSN 1074-1240. (doi:10.3905/jod.2019.26.3.007) (Access to this publication is currently restricted. You may be able to access a copy if URLs are provided)

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Abstract

Real estate derivatives have the potential to stabilize one of the most influential risks present in economies worldwide—real estate risk. Commercial and residential real estate represent a very large proportion of wealth in developed economies. In this article, the authors revisit the evolution of these instruments and describe the state of the art in modeling how they should be priced. The property derivatives market is still underdeveloped by comparison with its corresponding cash market, one main reason commonly cited being the lack of flexible and robust theoretical approaches that can be easily applied in practice. In recent years, several models have been proposed for pricing real estate derivatives, and this article reviews the most important ones. In addition, the authors highlight a discrete-time model that can be easily set up and applied for pricing real estate derivatives employing Monte Carlo simulation. It is reasonable to expect that the expanding literature on real estate derivatives valuation will provide the framework needed for this market to grow.

Item Type: Article
DOI/Identification number: 10.3905/jod.2019.26.3.007
Additional information: Alternative link to article: https://jod.iijournals.com/content/26/3/7
Divisions: Faculties > Social Sciences > Kent Business School
Depositing User: Radu Tunaru
Date Deposited: 06 Mar 2019 12:21 UTC
Last Modified: 03 Jun 2019 09:31 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/72861 (The current URI for this page, for reference purposes)
Tunaru, Radu: https://orcid.org/0000-0002-5623-9876
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