Pricing and Index Considerations in Commercial Real Estate Derivatives

摘要

Until very recently, real estate was the largest class of tradable assets for which no majorrnderivatives markets existed. This began tornchange around 2005, when swaps based on the Investment Property Databank (IPD) Index began over-the-counter trading in substantial volume in the U.K., growing to over £3 billion of notional value traded in the first quarter of 2007. This is more than one-third of the current total rate of quarterly trading volume in the cash market for IPD-tracked properties. An equivalent number in the U.S., based on properties tracked by Real Capital Analytics Inc. (RCA), would be over $120 billion of derivatives trading volume per year. However, real estate derivatives trading in the U.S. has been slow to take off. While the NCREIF Property Index (NPI) has been available for trading since 2005, few deals had been done by early 2007 when the license was opened to multiple investment banks.