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Ex-ante real estate Value at Risk calculation method

Author

Listed:
  • Charles-Olivier Amédée-Manesme
  • Fabrice Barthélémy

Abstract

The computation of Value at Risk ($VaR$) has long been a problematic issue in commercial real estate. Difficulties mainly arise from the lack of appropriate data, lack of transactions, the non-normality of returns, and the inapplicability of many of the traditional methodologies. In addition, real estate investment is difficult to diversify and specific risk remains latent in investors' portfolio. It follows that risk of the entire market does not correspond to risk an investor bears. Therefore the risk measurements based on index do not represent the specific portfolio risk. As a result, calculation of this risk measure has rarely been done in the Real Estate field. However, following a spate of new regulations such as Basel II, Basel III, NAIC and Solvency II, financial institutions have increasingly been required to estimate and control their exposure to market risk. Hence, financial institutions now commonly use ``internal'' $VaR$ (or Expected Shortfall) models in order to assess their market risk exposure. The purpose of this paper is to propose a model that incorporates real estate portfolio specificities in a real estate VaR model.

Suggested Citation

  • Charles-Olivier Amédée-Manesme & Fabrice Barthélémy, 2015. "Ex-ante real estate Value at Risk calculation method," ERES eres2015_56, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2015_56
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    Cited by:

    1. is not listed on IDEAS
    2. Zouheir Mighri & Raouf Jaziri, 2023. "Long-Memory, Asymmetry and Fat-Tailed GARCH Models in Value-at-Risk Estimation: Empirical Evidence from the Global Real Estate Markets," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(1), pages 41-97, March.
    3. Jose A. Rodriguez-Serrano, 2025. "Prototype-based learning for real estate valuation: a machine learning model that explains prices," Annals of Operations Research, Springer, vol. 344(1), pages 287-311, January.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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