Property Derivatives
Training
Provided by London Financial Studies
Course Outline
Terminology, procedures, models and applications related to the latest real-estate derivatives will be covered in this course. The first day is dedicated to forwards and futures and to the introduction of a new type of modelling based on mean-reverting models with nonlinear trend. Day two covers total return swaps and options pricing and risk calculations based on value-at-risk and expected shortfall measures.
Who The Course is For
The course is useful for property investment desks and houses, risk managers that have to deal with this array of new derivatives, product control and model validation teams, hedge fund participants aiming at trading on the nascent real-estate derivatives markets, traders, research and policy departments.
Prior Knowledge:
* Basic knowledge of financial markets and instruments (bonds, swaps, caps, floors, options) in terms of mechanics and elementary pricing.
* Basic knowledge of fixed income (yield curve, forward rates, forward curve, Libor contracts, discounting factors, interpolation, discounting cash flows).
* Elementary mathematics and statistics (probability distributions, mean, variance, correlation coefficient, quantiles, regression modelling and analysis, model selection with t-tests).
* Microsoft Excel.
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Property Derivatives
Day One
Property Derivative Markets and Instruments
* Instruments:
o Forwards and Futures
o Total Return Swaps
o Options
* Markets
o U.S.: CME derivatives, Case-Shiller Index, new index RPX
o UK: Eurex futures, IPD, residential OTC on Halifax HPI, Europe and world-wide
Pricing Forwards and Futures
* Geltner?s equilibrium model
* Black-Scholes type pricing and why this is wrong
* Counterparty risk
Workshop: Hedging with forwards and futures
Calibration of Market Price of Risk
* Wang transform: properties and examples
* Martingale pricing and the role of market price of risk
* Methodology of calibration of market price of risk with Wang?s transform
Workshop: Calibrating the market price of risk from current level of HHPI real-estate index (Excel)
Mean-reverting models
* New mean-reverting model
* Drift is important
* Exact formulas for forwards
* Parameter estimation
Workshop: Calibration of mean-reverting models and Monte Carlo simulations for IPD index and HHPI index
Day Two
Total Return Swaps and Options
* Equilibrium models
* Buttimer?s model and Bjork-Clapham correction
* Counterparty Risk calculations
* Incomplete markets and two and three factor models
* New mean-reverting models
Workshop: Pricing TRS with Monte Carlo and mean-reverting models; the link with forward markets
Portfolio considerations and Structured Products
* Structured products: pricing and risk considerations
* Cross-country strategies
* Cross-region strategies
* Relationship with interest rate markets
Risk Calculations for Real-Estate Portfolios
* Value-at-Risk: first generation measure
* Expected shortfall: second generation method
* Importance of drift and long-run mean
* A Monte Carlo simulation valuation framework
Workshop: VaR and expected shortfall calculations for forwards and TRS
Course Revision
Property Derivative Markets and Instruments
* Instruments:
o Forwards and Futures
o Total Return Swaps
o Options
* Markets
o U.S.: CME derivatives, Case-Shiller Index, new index RPX
o UK: Eurex futures, IPD, residential OTC on Halifax HPI, Europe and world-wide
Pricing Forwards and Futures
* Geltner?s equilibrium model
* Black-Scholes type pricing and why this is wrong
* Counterparty risk
Workshop: Hedging with forwards and futures
Calibration of Market Price of Risk
* Wang transform: properties and examples
* Martingale pricing and the role of market price of risk
* Methodology of calibration of market price of risk with Wang?s transform
Workshop: Calibrating the market price of risk from current level of HHPI real-estate index (Excel)
Mean-reverting models
* New mean-reverting model
* Drift is important
* Exact formulas for forwards
* Parameter estimation
Workshop: Calibration of mean-reverting models and Monte Carlo simulations for IPD index and HHPI index
Day Two
Total Return Swaps and Options
* Equilibrium models
* Buttimer?s model and Bjork-Clapham correction
* Counterparty Risk calculations
* Incomplete markets and two and three factor models
* New mean-reverting models
Workshop: Pricing TRS with Monte Carlo and mean-reverting models; the link with forward markets
Portfolio considerations and Structured Products
* Structured products: pricing and risk considerations
* Cross-country strategies
* Cross-region strategies
* Relationship with interest rate markets
Risk Calculations for Real-Estate Portfolios
* Value-at-Risk: first generation measure
* Expected shortfall: second generation method
* Importance of drift and long-run mean
* A Monte Carlo simulation valuation framework
Workshop: VaR and expected shortfall calculations for forwards and TRS
Course Revision
About The Training Provider: London Financial Studies
London Financial Studies - London Financial Studies is a specialist teaching resource that concentrates exclusively on capital markets. We offer individuals, teams and companies expert teaching that combines theoretical understanding with practical experience.
Our business is driven by a distinct philosophy and clear values:
* Practical Application
* Intellectual Clarity
* Personal Approach
*...
