The Journal of Real Estate Finance and Economics

, Volume 53, Issue 4, pp 494–526 | Cite as

Forward Curve Risk Factors Analysis in the UK Real Estate Market

  • Pierre-Arnaud DrouhinEmail author
  • Arnaud Simon
  • Yasmine Essafi


This paper empirically investigates the risk factors of the property swap prices using 4 years of price data relative to the UK Investment Property Databank (IPD) Total Return All Property Swap. The implied forward rates are analyzed with a first difference model to determine its main components. Regarding the risk free rate, the traditional sport-forward relation does not hold for property derivatives. The impact of the risk free rate on forward rates appears as being complex and made of different effects; it varies according to time and maturities. Derivatives prices take into account the smoothing effect of the underlying index and REITs stocks are also relevant to explain these prices. The informational content of the swap is important. The impact of the REITs and of the smoothing decreases with maturities. The risk factor structure obtained is more complex than found in many other studies relative to commodities, securities or bonds. Possible reasons for this phenomenon are discussed.


Real estate swap Forward curve Appraisal based index First-difference model 


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Pierre-Arnaud Drouhin
    • 1
    Email author
  • Arnaud Simon
    • 1
  • Yasmine Essafi
    • 1
  1. 1.Université Paris-DauphineParisFrance

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