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Property Derivatives: Pricing, Hedging and Applications


Property derivatives have the potential to revolutionize real estate – the last major asset class without a liquid derivatives market. The new instruments offer ease and flexibility in the management of property risk and return.

Property funds, insurance companies, pension and life funds, speculators, hedge funds or any asset manager with a view on the real estate market can apply the new derivatives to hedge property risk, to invest synthetically in real estate, or for portfolio optimization. Moreover, developers, builders, home suppliers, occupiers, banks, mortgage lenders and governmental agencies can better cope with their real estate exposure using property derivatives.

This book is a practical introduction to property derivatives and their numerous applications. Providing a comprehensive overview of the property derivatives market and indices, there is also in-depth coverage of pricing, hedging and risk management, which will deepen the readers understanding of the market’s mechanisms.

Covering both the theoretical and practical aspects of the property derivatives markets; this book is the definitive reference guide to a new and fast-growing market.

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.

Part I: Introduction to Property Derivatives.

1. A Finance View on the Real Estate Market.

2. Basic Derivative Instruments.

3. Rationales for Property Derivatives.

4. Hurdles for Property Derivatives.

5. Experience in Property Derivatives.

6. Underlying Indices.

Part II: Pricing, Hedging and Risk Management.

7. Index Dynamics.

8. The Property Spread.

9. Pricing Property Derivatives n Established Markets.

10. Measuring and Managing Risk.

11. Decomposing a Property Index.

12. Pricing and Hedging in Incomplete Markets.

Part III: Applications.

13. Range of Applications.

14. Investing in Real Estate.

15. Hedging Real Estate Exposure.

16. Management of Real Estate Portfolios.

17. Corporate Applications.

18. Indexed Building Savings.

19. Home Equity Insurance.