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dc.contributor.advisorDavid M. Geltner.en_US
dc.contributor.authorEddins, Quinn W. (Quinn William)en_US
dc.contributor.otherMassachusetts Institute of Technology. Center for Real Estate.en_US
dc.date.accessioned2010-09-22T15:52:28Z
dc.date.available2010-09-22T15:52:28Z
dc.date.copyright2008en_US
dc.date.issued2008en_US
dc.identifier.urihttp://hdl.handle.net/1721.1/58631
dc.descriptionThesis (M.C.P.)--Massachusetts Institute of Technology, Dept. of Urban Studies and Planning; and, (S.M. in Real Estate Development)--Massachusetts Institute of Technology, Dept. of Urban Studies and Planning, Center for Real Estate, 2008.en_US
dc.descriptionThis electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections.en_US
dc.descriptionIncludes bibliographical references (p. 54-56).en_US
dc.description.abstractThis paper examines why and how publicly-traded home builders might use index-based residential property derivatives to manage risk. After describing a number of alternative reasons for hedging, I argue for a paradigm for risk management proposed by Kenneth Froot, David Scharfstein and Jeremy Stein and augmented by Antonio Mello and John Parsons. According to this paradigm, the objective of hedging is to increase a firm's financial flexibility by maximizing its liquidity - slack in the form of cash or unused debt capacity - when falling output prices reduce income and make it difficult to raise external financing, but do not reduce the firm's need for funds. An important implication of this paradigm is that attempting to eliminate volatility in the value of a firm is not an optimal hedging objective, and attempting to do so can, in fact, reduce the value of the firm. To illustrate how this paradigm might be used by public home builders it is applied to two hypothetical firms, each with a different capital structure and regional focus, and the potential benefits of hedging for each firm is discussed. The discussion then turns to the available real estate derivative products and how they can be employed as hedging vehicles. Key issues pertaining to the design of hedging vehicles are examined, including 1) how to choose a derivative contract, 2) how to choose an index or indices to use as the asset underlying the hedging vehicle and 3) how to address misalignment between the time to expiration of available derivatives contracts and the development time frames of residential communities. Evidence is presented that suggests hedging vehicles based on multi-market composite indices will probably have too much basis risk to effectively hedge against downturns in the prices of some builders' homes.en_US
dc.description.abstract(cont.) Finally, I describe a methodology for determining whether and how much a firm should hedge.en_US
dc.description.statementofresponsibilityby Quinn W. Eddins.en_US
dc.format.extent56 p.en_US
dc.language.isoengen_US
dc.publisherMassachusetts Institute of Technologyen_US
dc.rightsM.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.en_US
dc.rights.urihttp://dspace.mit.edu/handle/1721.1/7582en_US
dc.subjectUrban Studies and Planning.en_US
dc.subjectCenter for Real Estate.en_US
dc.titleRisk management with residential real estate derivatives : strategies for home buildersen_US
dc.typeThesisen_US
dc.description.degreeS.M.in Real Estate Developmenten_US
dc.description.degreeM.C.P.en_US
dc.contributor.departmentMassachusetts Institute of Technology. Dept. of Urban Studies and Planning.en_US
dc.contributor.departmentMassachusetts Institute of Technology. Center for Real Estate.en_US
dc.contributor.departmentMassachusetts Institute of Technology. Department of Urban Studies and Planning
dc.identifier.oclc276934885en_US


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