Deriving Optimal Portfolios for Hedging Housing Risk

Cristian Voicu () and Michael Seiler ()

The Journal of Real Estate Finance and Economics, 2013, vol. 46, issue 3, 379-396

Abstract: Households that contemplate moving to different cities or trading up/down in the future are exposed to substantial housing risk. In order to mitigate this risk, we derive optimal portfolios using CME housing futures. Housing investment risk is hedged by selling housing futures amounting to the full value of the home. Housing consumption risk is hedged by buying housing futures in each city where the household might move. The size of the hedges depends on the probability of moving, on home values, and on labor income in each region. The hedging demands offset each other when the household intends to live in the same home indefinitely. Copyright Springer Science+Business Media, LLC 2013

Keywords: Housing derivatives; Optimal portfolio derivation; Hedging strategies; G11; G13; R29 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s11146-011-9328-x

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