Is it possible to construct derivatives for the Paris residential market?
In this paper we address the issue of the robustness of the price level, mean, and variance estimates for two sets of repeat sales real estate price indices: the classical WRS method and a PCA factorial method, as elaborated in Baroni, Barthélémy and Mokrane (2007). We use an extensive repeat sales database for the Paris (France) residential market to compute the parameters of the indices produced over the period 1982-2005. The aim here is to test the sensitivity of these two indices to revision due to additional repeat-sales transactions information. Our main conclusion is that the revision problem may cause serious concern for the stability of key parameters that are used as inputs in the pricing of derivatives contracts. The impact of index revision is important on the estimate of the index price level. We also find that although the revision impact on the trend estimate can be important: the WRS method seems more robust and derivatives contracts such as swaps may be based on such indices. Finally, the revision influence on volatility estimates seems to be less stringent, and according to the robustness of the volatility estimate, the BBM factorial index seems to fare relatively better than the WRS index. Hence, we find that the factorial index could better sustain volatility based derivatives such as call or put options.
|Date of creation:||Dec 2007|
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- Eric Ghysels & Christian Gouriéroux & Joanna Jasiak, 1995.
"Market Time and Asset Price Movements Theory and Estimation,"
CIRANO Working Papers
- Ghysels, E. & Gourieroux, C. & Jasiak, J., 1995. "Market Time and Asset Price Movements: Theory and Estimation," Cahiers de recherche 9536, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Ghysels, E. & Gourieroux, C. & Jasiak, J., 1995. "Market Time and Asset Price Movements: Theory and Estimation," Cahiers de recherche 9536, Universite de Montreal, Departement de sciences economiques.
- Clapham, Eric & Englund, Peter & Quigley, John M. & Redfearn, Christian L., 2007.
"Revisiting the Past and Settling the Score: Index Revision for House Price Derivatives,"
Berkeley Program on Housing and Urban Policy, Working Paper Series
qt1m2340dt, Berkeley Program on Housing and Urban Policy.
- Eric Clapham & Peter Englund & John M. Quigley & Christian L. Redfearn, 2006. "Revisiting the Past and Settling the Score: Index Revision for House Price Derivatives," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(2), pages 275-302, 06.
- Michel Baroni & Fabrice BartheÂ´leÂ´my & Mahdi Mokrane, 2007. "APCA Factor Repeat Sales Index for Apartment Prices in Paris," Journal of Real Estate Research, American Real Estate Society, vol. 29(2), pages 137-158.
- repec:cup:cbooks:9780521424080 is not listed on IDEAS
- John M. Clapp & Carmelo Giaccotto, 1999. "Revisions in Repeat-Sales Price Indexes: Here Today, Gone Tomorrow?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(1), pages 79-104.
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