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We consider the term structure of lease rates in a general setting where both the interest rate and the short rent are stochastic. Our framework is applicable to any leasing market, but we focus on real estate. We find that the “expectations hypothesis” of lease rates, i.e. that the forward rent is an unbiased estimator of the future short rent, requires similar assumptions as in interest rate theory to hold. To study the magnitude of the bias we parameterize our general framework. The simulations show that different realistic parameter values for risk aversion and interest rate stochastics can generate widely different shapes of the rental term structure, holding the objective rental expectations constant. As a result, an expected increase in rent may very well be consistent with a downward-sloping term structure and vice versa.

In this paper we discuss the pricing of commercial real estate index linked swaps (CREILS). This particular pricing problem has been studied by Buttimer et al. (1997) in a previous paper in this jo ...

∗∗∗ ∗∗∗ ∗∗∗∗ This article examines index revision in measuring the prices for owner-occupied housing. We consider revision in the context of equity insurance and the settlement of futures contracts. The usefulness of aggregate housing price indexes in these contexts requires stability as they are extended. Methods that are subject to substantial revision raise questions about the viability of derivatives markets. We find that the most widely used house price indexes are not equally exposed to volatility in revision. Hedonic indexes appear to be substantially more stable than repeat-sales indexes and are not prone to the systematic downward revision found in the repeat-sales indexes. Most of the statistical series used to describe the workings of the economy are subject to periodic reexamination and reestimation. Indexes are revised when either the method used to incorporate data or the data themselves are updated. Index revision of the former type is illustrated by the changes in the Consumer Price Index (CPI) that arose from implementing the findings of the Advisory Commission to Study the CPI (the so-called “Boskin Commission”). In this case, the CPI was rebenchmarked through the adoption of new practices based on economic theory. 1 Index revision of the latter type results from the reestimation of the index after the arrival of new information. 2 We focus on index