Property Derivatives

Preface

PART I INTRODUCTION TO PROPERTY DERIVATIVES

1 A Finance View on the Real Estate Market
1.1 Real Estate is Different from Other Asset Classes
1.2 Limited Access to Real Estate Investments
1.3 New Instruments needed

2 Basic Derivative Instruments
2.1 Forwards, Futures and Swaps
2.2 Options

3 Rationales for Property Derivatives
3.1 Advantages and Disadvantages of Property Derivatives
3.2 Finding a Suitable Real Estate Investment
3.3 Usage of Property Derivatives

4 Hurdles for Property Derivatives
4.1 Creating a Benchmark
4.2 Education and Acceptance
4.3 Heterogeneity and Lack of Replicability
4.4 Regulation and Taxation
4.5 Building Liquidity

5 Experience in Property Derivatives
5.1 United Kingdom
5.2 United States
5.3 Other Countries and Future Expectations

6 Underlying Indices
6.1 Characteristics of Underlying Indices
6.2 Appraisal-Based Indices
6.3 Transaction-Based Indices

PART II PRICING, HEDGING AND RISK MANAGEMENT

7 Index Dynamics
7.1 Economic Dependencies and Cycles
7.2 Bubbles, Peaks and Downturns
7.3 Degree of Randomness
7.4 Dynamics of Appraisal-based Indices
7.5 Dynamics of Transaction-based Indices
7.6 Empirical Index Analysis
7.7 Distribution of Index Returns

8 Feedback Effects
8.1 Impact on Volatility
8.2 Impact on Risk Premium
8.3 Impact on Appraisal Practice
8.4 Impact on Transaction Volumes

9 The Property Premium Puzzle
9.1 No Replication - No Arbitrage
9.2 The Property Spread

10 Pricing Property Derivatives in Established Markets
10.1 Forward Property Prices
10.2 Pricing Options on Property Indices

11 Measuring and Managing Risk
11.1 Market Development and Liquidity
11.2 Early and Mature Stages
11.3 Property Value-at-Risk

12 Decomposing a Property Index
12.1 General Explanatory Factors
12.2 Tradable Explanatory Factors
12.3 Example: The Halifax HPI

13 Pricing and Hedging in Incomplete Markets
13.1 Hedging Analysis
13.2 Pricing without a Perfect Hedge
13.3

Juerg M. Syzis head of financial engineering investments at Zürcher Kantonalbank (ZKB) in Zurich, Switzerland. He has six years experience of working in structured derivatives across various asset classes with a focus on product development. At ZKB, he was responsible for the first property derivatives traded in Switzerland and for the launch of the first mortgage that is linked to a property index, protecting home equity.

Juerg holds a Master of Science in Finance from the University of Zurich, as well as the CFA Charter and a Master in Business Administration from INSEAD. He publishes regularly in internationally renowned journals and lectures at the Swiss Real Estate School and the Swiss Training Centre for Investment Professionals.