Pricing the options inherent in leased commercial property: a UK case study

This paper sets out the findings of a group of research and development projects carried out at the Department of Real Estate & Planning at the University of Reading and at Oxford Property Systems over the period 1999 – 2003. The projects have several aims: these are to identify the fundamental drivers of the pricing of different lease terms in the UK property sector; to identify current and best market practice and uncover the main variations in lease terms; to identify key issues in pricing lease terms; and to develop a model for the pricing of rent under a variety of lease variations. From the landlord’s perspective, the main factors driving the required ‘compensation’ for a lease term amendment include expected rental volatility, expected probability of tenant vacation, and the expected costs of tenant vacation. These data are used in conjunction with simulation technology to reflect the options inherent in certain lease types to explore the required rent adjustment. The resulting cash flows have interesting qualities which illustrate the potential importance of option pricing in a non-complex and practical way.

When's your birthday? The self-reference effect in retrieval of dates

Material encoded with reference to the self is better remembered. One interpretation of this effect is that the self operates to organise retrieval of memories. We were motivated to find out whether this organisational principle extended to everyday information and for material not explicitly related to the self. Participants generated friends' birthdays from memory and then gave their own birthday. We found that participants were particularly likely to recall birthdays from on or around the date of their own birthday. Thus, memory for birthdays clusters around self-relevant information, even when there is no specific attempt to recall self-related material. Birthdays clustered somewhat around the time of testing, important dates in the calendar, and for a close other, but not to the extent of the participants' birthdays. We suggest this is a demonstration of the organisational structure of the self in memory. Copyright (C) 2010 John Wiley & Sons, Ltd.

A simplified pricing model for volatility futures

We develop a general model to price VIX futures contracts. The model is adapted to test both the constant elasticity of variance (CEV) and the Cox–Ingersoll–Ross formulations, with and without jumps. Empirical tests on VIX futures prices provide out-of-sample estimates within 2% of the actual futures price for almost all futures maturities. We show that although jumps are present in the data, the models with jumps do not typically outperform the others; in particular, we demonstrate the important benefits of the CEV feature in pricing futures contracts. We conclude by examining errors in the model relative to the VIX characteristics