This paper examines index revision in measuring the prices for owner-occupied housing. We consider the context of equity insurance and the settlement of futures contracts. In addition to other desirable characteristics for aggregate price indexes, their usefulness in these contexts requires stability as they are revised. Methods that are subject to substantial or complex revision raise questions about the viability of derivatives markets. Of course, all indexes are subject to revision as the result of new information. Nevertheless, we find that the most-widely used house price indexes are not equally exposed to volatility in revision. Hedonic indexes appear to be substantially more stable than repeat-sales indexes and are less prone to substantial revision in the light of new information. Moreover, we find that the repeat-sales indexes are subject to systematic downward revision. We analyze alternative settlement procedures and contracts to mitigate the impact of revision associated with repeat sale indexes.

This paper examines index revision in measuring the prices for owner-occupied housing. We consider the context of equity insurance and the settlement of futures contracts. In addition to other desi ...

This paper considers a class of leases with indexed rents subject to a floor. Such leases have an upward-only flavour to them, although not in exactly the same sense as in the traditional upward-only institutional lease. After deriving a general result, three empirically important cases are considered: a modified upward-only lease, the Swedish standard contract for commercial leases and the percentage lease. Analytical results and numerical examples are used to illustrate how the leases relate to other contract types.

We consider the term structure of lease rates in a general setting where both rents and interest rates are stochastic. The framework is applicable to any leasing market, but we focus on real estate. We find that the ``expectations hypothesis", that is, forward rates are unbiased estimators of future rents, requires similar assumptions as in interest rate theory to hold. To study bias magnitude, simulations are performed using a parameterization of the general framework. Different realistic values for risk aversion and interest rate stochastics can generate widely different shapes of the term structure, holding objective expectations constant. Thus an expected increase in rent is consistent with a downward‐sloping term structure and vice versa.

Buetow and Albert (1998) discuss options embedded in lease contracts. They present a pricing framework, calibrate it using data from the National Real Estate Index and apply it using a numerical method known as the finite difference method with absorbing boundaries. This note extends the analysis. Analytic solutions are presented and some of the findings are discussed. The framework developed by Grenadier is used to compare indexed renewal options for different lease lengths.

In this paper we discuss the pricing of commercial real estate index linked swaps (CREILS). This particular pricing problem has been studied by Buttimer et al. (1997) in a previous paper. We show that their results are only approximately correct and that the true theoretical price of the swap is in fact equal to zero. This result is shown to hold regardless of the specic model chosen for the index process, the dividend process, and the interest rate term structure. We provide an intuitive economic argument as well as a full mathematical proof of our result. In particular we show that the nonzero result in the previous paper is due to two specic numerical approximations introduced in that paper, and we discuss these approximation errors from a theoretical as well as from a numerical point of view.

In this paper we discuss the pricing of commercial real estate index linked swaps (CREILS). This particular pricing problem has been studied by Buttimer et al. in a previous paper in this journal (6 [1997]: 16). We show that their results are only approximately correct and that the true theoretical price of the swap is in fact equal to zero. This result is shown to hold regardless of the specific model chosen for the index process, the dividend process, and the interest rate term structure. We provide an intuitive economic argument as well as a full mathematical proof of our results. In particular we show that the nonzero result in the previous paper is due to two specific numerical approximations introduced in that paper, and we discuss these approximation errors from a theoretical as well as from a numerical point of view.