Real Estate Finance: Thery and Its Applications

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The main issue of contemporary finance theory is to investigate relationship between the risk and return, in another words, how the asset price is determined in the financial markets so as to reflect the risk and return. In studies of the real estate finance, the same argument must be hold.For this purpose, first we try to identify several key real estate risks such as vacancy, property and land price changes, and credit risk of real estate in micro and macro levels. It is stressed that different statistical and econometric methods, which are not usually used in traditional asset pricing research such that bonds, stocks, and foreign currencies, are employed to measure these risks.Secondly, several new types of derivatives whose underling is real estate assets are proposed and in the same time pricing model of such derivatives are derived. REITS (Real Estate Investment trust), Reverse Mortgage, options and forward contracts for the real estate indexes, vacancy options (sublease contracts), and many types of "Real Options" are those types of newly developed real estate produces considered in this research. It can be shown that these real estate derivatives are useful to hedge and control risk based on our pricing models proposed in this research.We put emphasis that our research should reflect not only theoretical aspect of the finance theory, but also current Japanese real estate problems Put anther way, we try to develop pricing models theoretically sound and to keep in mind that the models developed are easy to use and understand by practitioners.