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Equity Derivatives Trading
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Question posted: 05 12 2008 00:33:47 +0000,
1 answers, 72 views, last activity
07 06 2010 20:18:08 +0000
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Would there be any significant correlation between interest rate and the property derivative so that you cannot price property derivatives with the same assumptions as say equity or interest rate products?
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Property derivatives typically involve a swap of returns on commercial property against floating interest rates plus a spread for a period of three years or longer. Commercial property is the largest physical asset class not currently taking full advantage of derivatives.
Since the underlying asset - the property index is not tradable, the market is not so-called dynamically complete, so there is no single market valuation of the derivatives. People who have too much exposure to property risk (e.g. developers) may value a specific derivatives differently from those who have too much exposure to interest rate risk (e.g. banks). That's why they trade, isn't it?
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