Valuation of real-estate losses via Monte Carlo simulation
The valuation of the exposure to real estate market risk has traditionally been difficult due to the lack of appropriate data, returns that do not follow a normal distribution and a lack of adequate methodology. However, regulations such as Basel II, Basel III and Solvency II make it possible to ass...
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Online Access: | http://dx.doi.org/10.1080/1331677X.2020.1756372 |
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doaj-60fc04d5cf894fecad8f541ddd983bdc2021-04-06T13:27:30ZengTaylor & Francis GroupEkonomska Istraživanja1331-677X1848-96642020-01-013311867188810.1080/1331677X.2020.17563721756372Valuation of real-estate losses via Monte Carlo simulationAitor Barañano0J. Iñaki De La Peña1Rafael Moreno2PHD Program on Economy and Business, University of MalagaFaculty of Economics and Business, Financial Economics I Department, University of the Basque Country (UPV/EHU)Faculty of Economics and Business, Finance and Accounting Department, University of Málaga (UMA)The valuation of the exposure to real estate market risk has traditionally been difficult due to the lack of appropriate data, returns that do not follow a normal distribution and a lack of adequate methodology. However, regulations such as Basel II, Basel III and Solvency II make it possible to assess real estate market risk using an internal model and through Value at Risk. The study develops a procedure to provide an internal model that values real estate market risk and calculates the capital that guarantees it. Monte Carlo simulations are used to calculate Value at Risk. As result, capital requirements can be established from these results to help with portfolio decision-making of insurance companies that hold real estate. Data used in the study is taken from the General Council of Notaries registered dwellings databases from the Spanish National Statistics Institute covering the time period of 2007–2017. This paper contributes to the literature by proposing a model that incorporates the characteristics of investments, allowing a real and market measure of the risk of loss from real estate.http://dx.doi.org/10.1080/1331677X.2020.1756372real estate valuationmonte carlovalue at risksolvency capital requirement |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Aitor Barañano J. Iñaki De La Peña Rafael Moreno |
spellingShingle |
Aitor Barañano J. Iñaki De La Peña Rafael Moreno Valuation of real-estate losses via Monte Carlo simulation Ekonomska Istraživanja real estate valuation monte carlo value at risk solvency capital requirement |
author_facet |
Aitor Barañano J. Iñaki De La Peña Rafael Moreno |
author_sort |
Aitor Barañano |
title |
Valuation of real-estate losses via Monte Carlo simulation |
title_short |
Valuation of real-estate losses via Monte Carlo simulation |
title_full |
Valuation of real-estate losses via Monte Carlo simulation |
title_fullStr |
Valuation of real-estate losses via Monte Carlo simulation |
title_full_unstemmed |
Valuation of real-estate losses via Monte Carlo simulation |
title_sort |
valuation of real-estate losses via monte carlo simulation |
publisher |
Taylor & Francis Group |
series |
Ekonomska Istraživanja |
issn |
1331-677X 1848-9664 |
publishDate |
2020-01-01 |
description |
The valuation of the exposure to real estate market risk has traditionally been difficult due to the lack of appropriate data, returns that do not follow a normal distribution and a lack of adequate methodology. However, regulations such as Basel II, Basel III and Solvency II make it possible to assess real estate market risk using an internal model and through Value at Risk. The study develops a procedure to provide an internal model that values real estate market risk and calculates the capital that guarantees it. Monte Carlo simulations are used to calculate Value at Risk. As result, capital requirements can be established from these results to help with portfolio decision-making of insurance companies that hold real estate. Data used in the study is taken from the General Council of Notaries registered dwellings databases from the Spanish National Statistics Institute covering the time period of 2007–2017. This paper contributes to the literature by proposing a model that incorporates the characteristics of investments, allowing a real and market measure of the risk of loss from real estate. |
topic |
real estate valuation monte carlo value at risk solvency capital requirement |
url |
http://dx.doi.org/10.1080/1331677X.2020.1756372 |
work_keys_str_mv |
AT aitorbaranano valuationofrealestatelossesviamontecarlosimulation AT jinakidelapena valuationofrealestatelossesviamontecarlosimulation AT rafaelmoreno valuationofrealestatelossesviamontecarlosimulation |
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1721538215357186048 |