Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
A 30-Year Perspective on Property Derivatives: What Can Be Done to Tame Property Price Risk?
Journal of Economic Perspectives
vol. 34,
no. 4, Fall 2020
(pp. 121–45)
(Complimentary)
Abstract
The housing sector is the largest spot market in the world without a developed derivative contract to serve the risk management needs of market participants. This paper describes the evolution within a wider economic context of property derivatives in the United States and worldwide. We review various economic arguments presented in the literature to highlight the advantages of these financial instruments to society. The paper also provides a critical perspective on the principal obstacles hindering the development of property derivatives based on real estate prices—especially housing prices—and what can be done to overcome these difficulties. The issues discussed can serve as a guide for designing property derivatives capable of hedging real estate risk that has resurfaced time and time again in financial crises.Citation
Fabozzi, Frank J., Robert J. Shiller, and Radu S. Tunaru. 2020. "A 30-Year Perspective on Property Derivatives: What Can Be Done to Tame Property Price Risk?" Journal of Economic Perspectives 34 (4): 121–45. DOI: 10.1257/jep.34.4.121Additional Materials
JEL Classification
- G13 Contingent Pricing; Futures Pricing; option pricing
- R31 Housing Supply and Markets