We create market-based measures from options data to predict changes in REIT capital structure. REIT capital structure differs from that of typical listed firms: REITs have high leverage ratios of about 50 percent, their use of short-term debt is higher and more volatile, and debt issuance and...

We investigate how local information externalities affect investments in tangible durable assets via real options. Using geocoded transaction-level data on US commercial properties from 2000 to 2018, we find that investors have a higher propensity to invest in a property for immediate...

This paper reviews methods that can be used to value illiquid investments, with a particular focus on private equity and real estate. We discuss the traditional valuation methods, in particular the net present value (NPV) rule, and show in what circumstances these can lead to suboptimal...

Real option theory models real estate development as a developer-controlled exercise of an option to construct the optimal structure at the optimal time. In practice, most projects encounter a highly uncertain entitlement (i.e., regulatory approval) process that is largely uncontrollable by the...

In 2009 the Frankfurt based Eurex traded the first property future. Eurex is the international derivatives exchange and is jointly owned by Deutsche Börse AG and SWX Swiss Exchange. Consequently, returns on commercial property are now available in an exchange environment within Europe. The...

This paper aims to show that the accuracy of real estate portfolio valuations and of real estate risk management can be improved through the simultaneous use of Monte Carlo simulations and options theory. Our method considers the options embedded in Continental European lease contracts drawn up...

We use a compound option-based structural credit risk model to infer a term structure of banking crisis risk from market data on bank stocks in daily frequency. Considering debt service payments with different maturities this term structure assigns a separate estimator for short- and long-term...

We develop a new approach to approximating asset prices in the context of continuous-time models. For any pricing model that lacks a closed-form solution, we provide a closed-form approximate solution, which relies on the expansion of the intractable model around an “auxiliary” one. We...

We develop a structural bond pricing approach and implement it on a large panel of US industrial bonds using an efficient maximum likelihood methodology. We evaluate the model's ability to predict yield spread levels and changes out-of-sample. Errors are smaller and distinctly less variable than...

This paper analyzes how bond option prices are affected by different types of monetary policy. Analytical results from a general equilibrium model with sticky wages show that employment or output targeting typically give lower bond option prices than inflation targeting. -- inflation targeting ;...