The Journal of Real Estate Finance and Economics

, Volume 43, Issue 3, pp 281–298 | Cite as

Arbitrage Free Price Bounds for Property Derivatives

  • Juerg M. Syz
  • Paolo Vanini


Market frictions inhibit the perfect replication of property derivatives, and define the property spread as a price measure in the incomplete real estate market. We identify transaction costs, transaction time, and short sale constraints as the main frictions in this market. Based on these frictions, we set up a framework of arbitrage free price bounds for property derivatives. In turn, we use observed derivative prices to determine the implied cost of the frictions. Lastly, we verify these values by using other research, which confirms the accuracy of our framework.


Property derivatives Property spread Arbitrage free price bounds Market frictions Halifax House Price Index 


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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Diener Syz Real EstateZollikonSwitzerland
  2. 2.Zurich Cantonal Bank and Swiss Finance InstituteZurichSwitzerland

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