Authors:
Patrick Lecomte

Start Page: 345
End Page: 378
Volume: 13
Issue Number: 4
Year: 2007
Publication: Journal of Real Estate Portfolio Management

Abstract: As index-based real estate derivatives are being introduced in the United States, this paper questions the validity of these instruments for hedging risks involved in commercial real estate markets. It first shows that the concept of index-based derivatives may not be appropriate for intrinsically heterogeneous assets such as real estate. Based on an innovative framework drawn from the field of biomedical sciences, it then proposes the establishment of a radically new breed of
derivatives market that would enable effective hedging of commercial real estate assets. It concludes by outlining a framework for modeling real estate risk based on genetics that could be used with the proposed derivatives market. This paper is the winner of the best paper on Innovative Thinking ‘‘Thinking Out of the Box’’ (sponsored by the Homer Hoyt Advanced Studies Institute) award presented at the 2007 American Real Estate Society Annual Meeting in San Francisco, California.