Arbitrage Free Price Bounds for Property Derivatives

Arbitrage Free Price Bounds for Property Derivatives Market frictions inhibit the perfect replication of property derivatives, and define the property spread as a price measure in the incomplete real estate market. We identify transaction costs, transaction time, and short sale constraints as the main frictions in this market. Based on these frictions, we set up a framework of arbitrage free price bounds for property derivatives. In turn, we use observed derivative prices to determine the implied cost of the frictions. Lastly, we verify these values by using other research, which confirms the accuracy of our framework. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Arbitrage Free Price Bounds for Property Derivatives

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Publisher
Springer Journals
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-009-9225-8
Publisher site
See Article on Publisher Site

Abstract

Market frictions inhibit the perfect replication of property derivatives, and define the property spread as a price measure in the incomplete real estate market. We identify transaction costs, transaction time, and short sale constraints as the main frictions in this market. Based on these frictions, we set up a framework of arbitrage free price bounds for property derivatives. In turn, we use observed derivative prices to determine the implied cost of the frictions. Lastly, we verify these values by using other research, which confirms the accuracy of our framework.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Nov 24, 2009

References

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