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Rental expectations and the term structure of lease rates
KTH, Superseded Departments, Real Estate and Construction Management.ORCID iD: 0000-0001-5574-0522
2003 (English)In: Real estate economics (Print), ISSN 1080-8620, E-ISSN 1540-6229, Vol. 31, no 4, 647-670 p.Article in journal (Refereed) Published
Abstract [en]

We consider the term structure of lease rates in a general setting where both rents and interest rates are stochastic. The framework is applicable to any leasing market, but we focus on real estate. We find that the expectations hypothesis, that is, forward rates are unbiased estimators of future rents, requires similar assumptions as in interest rate theory to hold. To study bias magnitude, simulations are performed using a parameterization of the general framework. Different realistic values for risk aversion and interest rate stochastics can generate widely different shapes of the term structure, holding objective expectations constant. Thus an expected increase in rent is consistent with a downward-sloping term structure and vice versa.

Place, publisher, year, edition, pages
2003. Vol. 31, no 4, 647-670 p.
Keyword [en]
contracts, valuation, options, model
Identifiers
URN: urn:nbn:se:kth:diva-22984ISI: 000186762000006OAI: oai:DiVA.org:kth-22984DiVA: diva2:341682
Note
QC 20100525Available from: 2010-08-10 Created: 2010-08-10 Last updated: 2017-12-12Bibliographically approved

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Gunnelin, Åke

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