This book brings together the latest concepts and models in real-estate derivatives, the new fron... more 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 ...
Running title: Modeling stochastic political risk In this paper we model political risk for inter... more Running title: Modeling stochastic political risk In this paper we model political risk for international capital budgeting as the value of a hypothetical insurance policy that pays the holder any and all losses arising from political events. We address three important aspects of political risk that are widely acknowledged in the literature but either missing or incomplete in existing mathematical models: 1) loss causing political events arise from a wide range of sources, which are often mutually dependent; 2) the effect of a political event in terms of actual losses can vary depending on the economic, social and political conditions when it occurs; 3) the composition and the importance of the individual sources of political risk can change over time. Thus, the multivariate nature and dependency of loss causing political events are modeled as a conditional Poisson process that allows for dependency between the increments of the counting process. To account for the random effect of ...
Although property markets represent a large proportion of total wealth in developed countries, th... more 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.
In this article I investigate empirically what determines the dynamics of the IPD index that is r... more In this article I investigate empirically what determines the dynamics of the IPD index that is representative for the commercial real-estate in UK. The macroeconomicandinterestratevariablesidentifiedinthiscontextcanreproduceaproxyfundamentaleconomiccomponentunderpinning thecommercial real-estate price returns in UK. The analysis covers the period January 1987 to December 2011 and it is conducted at monthly and quarterly frequency. The motivation for this research is to provide a tool for pricing IPD property derivatives and other investment applications based on these financial products. The IPD derivatives pricing is developed employing the conditional Esscher transform, suitable for incomplete markets such as property. The model can also be used for risk management purposes and for trading strategies based on signalling of market disillusion.
Index-linked securities are offered by banks, financial institutions and building societies to in... more Index-linked securities are offered by banks, financial institutions and building societies to investors looking for downside risk protection whilst still providing upside equity index participation. This article explores how reverse cliquet options can be integrated into the structure of a guaranteed principal bond. Pricing problems are discussed under the standard Black-Scholes model and under the constant-elasticity-of-variance model. Forward start options are the main element of this structure and new closed formulae are obtained for these options under the latter model. Risk management issues are also discussed. An example is described showing how this structure can be implemented and how the financial engineer may forecast the coupon payment that will be made to investors buying this product without exposing the issuing institution to risk of loss.
Abstract: The aim of this paper is to develop a model for analyzing multiple response models for ... more Abstract: The aim of this paper is to develop a model for analyzing multiple response models for count data and that may take into account complex cor-relation structures. The model is specified hierarchically in several layers and can be used for sparse data as it is shown in the second part of the paper. It is a discrete multivariate response approach regarding the left side of models equations. Markov Chain Monte Carlo techniques are needed for extracting inferential results. The possible correlation between different counts is more general than the one used in repeated measurements or longitudinal studies framework.
studies [2], [4], [7], [10] and [14] showing how it can be applied to highly skewed data observed... more studies [2], [4], [7], [10] and [14] showing how it can be applied to highly skewed data observed in various industrial processes. The Alpha distribution is less known [8], [9] and as such inferential tools are less developed. The aim of this paper is to fill that gap in the literature and provide uniformly most powerful unbiased tests for discriminating between series of data coming from different populations. The results presented here may have potential applications in reliability modelling and applied statistics for control of industrial processes as already exemplified in [1], [3], and [12]. The paper is organised as follows. The next section briefly introduces the main elements following from the classical exponential family set-up. Section 3 contains the main results of the paper concerning tests of the differences between the parameters of the same type when the other parameters are unknown. The last section summarises the conclusions.
This book brings together the latest concepts and models in real-estate derivatives, the new fron... more 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 ...
Running title: Modeling stochastic political risk In this paper we model political risk for inter... more Running title: Modeling stochastic political risk In this paper we model political risk for international capital budgeting as the value of a hypothetical insurance policy that pays the holder any and all losses arising from political events. We address three important aspects of political risk that are widely acknowledged in the literature but either missing or incomplete in existing mathematical models: 1) loss causing political events arise from a wide range of sources, which are often mutually dependent; 2) the effect of a political event in terms of actual losses can vary depending on the economic, social and political conditions when it occurs; 3) the composition and the importance of the individual sources of political risk can change over time. Thus, the multivariate nature and dependency of loss causing political events are modeled as a conditional Poisson process that allows for dependency between the increments of the counting process. To account for the random effect of ...
Although property markets represent a large proportion of total wealth in developed countries, th... more 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.
In this article I investigate empirically what determines the dynamics of the IPD index that is r... more In this article I investigate empirically what determines the dynamics of the IPD index that is representative for the commercial real-estate in UK. The macroeconomicandinterestratevariablesidentifiedinthiscontextcanreproduceaproxyfundamentaleconomiccomponentunderpinning thecommercial real-estate price returns in UK. The analysis covers the period January 1987 to December 2011 and it is conducted at monthly and quarterly frequency. The motivation for this research is to provide a tool for pricing IPD property derivatives and other investment applications based on these financial products. The IPD derivatives pricing is developed employing the conditional Esscher transform, suitable for incomplete markets such as property. The model can also be used for risk management purposes and for trading strategies based on signalling of market disillusion.
Index-linked securities are offered by banks, financial institutions and building societies to in... more Index-linked securities are offered by banks, financial institutions and building societies to investors looking for downside risk protection whilst still providing upside equity index participation. This article explores how reverse cliquet options can be integrated into the structure of a guaranteed principal bond. Pricing problems are discussed under the standard Black-Scholes model and under the constant-elasticity-of-variance model. Forward start options are the main element of this structure and new closed formulae are obtained for these options under the latter model. Risk management issues are also discussed. An example is described showing how this structure can be implemented and how the financial engineer may forecast the coupon payment that will be made to investors buying this product without exposing the issuing institution to risk of loss.
Abstract: The aim of this paper is to develop a model for analyzing multiple response models for ... more Abstract: The aim of this paper is to develop a model for analyzing multiple response models for count data and that may take into account complex cor-relation structures. The model is specified hierarchically in several layers and can be used for sparse data as it is shown in the second part of the paper. It is a discrete multivariate response approach regarding the left side of models equations. Markov Chain Monte Carlo techniques are needed for extracting inferential results. The possible correlation between different counts is more general than the one used in repeated measurements or longitudinal studies framework.
studies [2], [4], [7], [10] and [14] showing how it can be applied to highly skewed data observed... more studies [2], [4], [7], [10] and [14] showing how it can be applied to highly skewed data observed in various industrial processes. The Alpha distribution is less known [8], [9] and as such inferential tools are less developed. The aim of this paper is to fill that gap in the literature and provide uniformly most powerful unbiased tests for discriminating between series of data coming from different populations. The results presented here may have potential applications in reliability modelling and applied statistics for control of industrial processes as already exemplified in [1], [3], and [12]. The paper is organised as follows. The next section briefly introduces the main elements following from the classical exponential family set-up. Section 3 contains the main results of the paper concerning tests of the differences between the parameters of the same type when the other parameters are unknown. The last section summarises the conclusions.
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