A 30-Year Perspective on Property Derivatives: What Can Be Done to Tame Property Price Risk?
Frank J. Fabozzi,
Robert J. Shiller and
Radu S. Tunaru
Journal of Economic Perspectives, 2020, vol. 34, issue 4, 121-45
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 pricesâ€”especially housing pricesâ€”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.
JEL-codes: G13 R31 (search for similar items in EconPapers)
Note: DOI: 10.1257/jep.34.4.121
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Persistent link: https://EconPapers.repec.org/RePEc:aea:jecper:v:34:y:2020:i:4:p:121-45
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