Pricing inefficiencies in private real estate markets using total return swaps

Efficient markets should guarantee the existence of zero spreads for total return swaps. However, real estate markets have recorded values that are significantly different from zero in both directions. Possible explanations might suggest non-rational behaviour by inexperienced market players or unusual features of the underlying asset market. We find that institutional characteristics in the underlying market lead to market inefficiencies and, hence, to the creation of a rational trading window with upper and lower bounds within which transactions do not offer arbitrage opportunities. Given the existence of this rational trading window, we also argue that the observed spreads can substantially be explained by trading imbalances due to the limited liquidity of a newly formed market and/or to the effect of market sentiment, complementing explanations based on the lag between underlying market returns and index returns.

The tendering process and performance analysis of a public building project in Ghana

A case study on the tendering process and cost/time performance of a public building project in Ghana is conducted. Competitive bids submitted by five contractors for the project, in which contractors were required to prepare their own quantities, were analyzed to compare differences in their pricing levels and risk/requirement perceptions. Queries sent to the consultants at the tender stage were also analyzed to identify the significant areas of concern to contractors in relation to the tender documentation. The five bidding prices were significantly different. The queries submitted for clarifications were significantly different, although a few were similar. Using a before-and-after experiment, the expected cost/time estimate at the start of the project was compared to the actual cost/time values, i.e. what happened in the actual construction phase. The analysis showed that the project exceeded its expected cost by 18% and its planned time by 210%. Variations and inadequate design were the major reasons. Following an exploration of these issues, an alternative tendering mechanism is recommended to clients. A shift away from the conventional approach of awarding work based on price, and serious consideration of alternative procurement routes can help clients in Ghana obtain better value for money on their projects.

An assessment of aerosol‐cloud interactions in marine stratus clouds based on surface remote sensing

An assessment of aerosol-cloud interactions (ACI) from ground-based remote sensing under coastal stratiform clouds is presented. The assessment utilizes a long-term, high temporal resolution data set from the Atmospheric Radiation Measurement (ARM) Program deployment at Pt. Reyes, California, United States, in 2005 to provide statistically robust measures of ACI and to characterize the variability of the measures based on variability in environmental conditions and observational approaches. The average ACIN (= dlnNd/dlna, the change in cloud drop number concentration with aerosol concentration) is 0.48, within a physically plausible range of 0–1.0. Values vary between 0.18 and 0.69 with dependence on (1) the assumption of constant cloud liquid water path (LWP), (2) the relative value of cloud LWP, (3) methods for retrieving Nd, (4) aerosol size distribution, (5) updraft velocity, and (6) the scale and resolution of observations. The sensitivity of the local, diurnally averaged radiative forcing to this variability in ACIN values, assuming an aerosol perturbation of 500 c-3 relative to a background concentration of 100 cm-3, ranges betwee-4 and -9 W -2. Further characterization of ACI and its variability is required to reduce uncertainties in global radiative forcing estimates.

Achieving whole-life value: The challenges of service-led construction

Major construction clients are increasingly looking to procure built facilities on the basis of added value, rather than capital cost. Recent advances in the procurement of construction projects have emphasised a whole-life value approach to meeting the client’s objectives, with strategies put in place to encourage long-term commitment and through-life service provision. Construction firms are therefore increasingly required to take on responsibility for the operation and maintenance of the construction project on the client’s behalf - with the emphasis on value and service. This inevitably throws up a host of challenges, not the least of which is the need for construction firms to manage and accommodate the new emphasis on service. Indeed, these ‘service-led’ projects represent a new realm of construction projects where the rationale for the project is driven by client’s objectives with some aspect of service provision. This vision of downstream service delivery increases the number of stakeholders, adds to project complexity and challenges deeply-ingrained working practices. Ultimately it presents a major challenge for the construction sector. This paper sets out to unravel some of the many implications that this change brings with it. It draws upon ongoing research investigating how construction firms can adapt to a more service-orientated built environment and add value in project-based environments. The conclusions lay bare the challenges that firms face when trying to compete on the basis of added-value and service delivery. In particular, how it affects deeply-ingrained working practices and established relationships in the sector.

The value premium and time-varying volatility

Numerous studies have documented the failure of the static and conditional capital asset pricing models to explain the difference in returns between value and growth stocks. This paper examines the post-1963 value premium by employing a model that captures the time-varying total risk of the value-minus-growth portfolios. Our results show that the time-series of value premia is strongly and positively correlated with its volatility. This conclusion is robust to the criterion used to sort stocks into value and growth portfolios and to the country under review (the US and the UK). Our paper is consistent with evidence on the possible role of idiosyncratic risk in explaining equity returns, and also with a separate strand of literature concerning the relative lack of reversibility of value firms' investment decisions.

American option valuation: implied calibration of GARCH pricing models

This study analyzes the issue of American option valuation when the underlying exhibits a GARCH-type volatility process. We propose the usage of Rubinstein's Edgeworth binomial tree (EBT) in contrast to simulation-based methods being considered in previous studies. The EBT-based valuation approach makes an implied calibration of the pricing model feasible. By empirically analyzing the pricing performance of American index and equity options, we illustrate the superiority of the proposed approach.

Real option pricing in mixed-use development projects

The application of real options theory to commercial real estate has developed rapidly during the last 15 Years. In particular, several pricing models have been applied to value real options embedded in development projects. In this study we use a case study of a mixed use development scheme and identify the major implied and explicit real options available to the developer. We offer the perspective of a real market application by exploring different binomial models and the associated methods of estimating the crucial parameter of volatility. We include simple binomial lattices, quadranomial lattices and demonstrate the sensitivity of the results to the choice of inputs and method.

The effect of asymmetries on stock index return value-at-risk estimates

It is widely accepted that equity return volatility increases more following negative shocks rather than positive shocks. However, much of value-at-risk (VaR) analysis relies on the assumption that returns are normally distributed (a symmetric distribution). This article considers the effect of asymmetries on the evaluation and accuracy of VaR by comparing estimates based on various models.

Theoretical perspectives on the development of a meta-methodology for value management

This paper provides a new set of theoretical perspectives on the topic of value management in building procurement. On the evidence of the current literature it is possible to identify two distinct methodologies which are based on different epistemological positions. An argument is developed which sees these two methodologies to be complementary. A tentative meta-methodology is then outlined for matching methodologies to different problem situations. It is contended however that such a meta-methodology could never provide a prescriptive guide. Its usefulness lies in the way in which it provides the basis for reflective practice. Of central importance is the need to understand the problem context within which value management is to be applied. The distinctions between unitary, pluralistic and coercive situations are seen to be especially significant.

The elasticity of demand is about occupancy, not prices: building European demand curves based on occupancy elasticity

The peak congestion of the European grid may create significant impacts on system costs because of the need for higher marginal cost generation, higher cost system balancing and increasing grid reinforcement investment. The use of time of use rates, incentives, real time pricing and other programmes, usually defined as Demand Side Management (DSM), could bring about significant reductions in prices, limit carbon emissions from dirty power plants, and improve the integration of renewable sources of energy. Unlike previous studies on elasticity of residential electricity demand under flat tariffs, the aim of this study is not to investigate the known relatively inelastic relationship between demand and prices. Rather, the aim is to assess how occupancy levels vary in different European countries. This reflects the reality of demand loads, which are predominantly determined by the timing of human activities (e.g. travelling to work, taking children to school) rather than prices. To this end, two types of occupancy elasticity are estimated: baseline occupancy elasticity and peak occupancy elasticity. These represent the intrinsic elasticity associated with human activities of single residential end-users in 15 European countries. This study makes use of occupancy time-series data from the Harmonised European Time Use Survey database to build European occupancy curves; identify peak occupancy periods; draw time use demand curves for video and TV watching activity; and estimate national occupancy elasticity levels of single-occupant households. Findings on occupancy elasticities provide an indication of possible DSM strategies based on occupancy levels and not prices.

Prediction of moisture, calorific value, ash and carbon content of two dedicated bioenergy crops using near-infrared spectroscopy

The potential of near infrared spectroscopy in conjunction with partial least squares regression to predict Miscanthus xgiganteus and short rotation coppice willow quality indices was examined. Moisture, calorific value, ash and carbon content were predicted with a root mean square error of cross validation of 0.90% (R2 = 0.99), 0.13 MJ/kg (R2 = 0.99), 0.42% (R2 = 0.58), and 0.57% (R2 = 0.88), respectively. The moisture and calorific value prediction models had excellent accuracy while the carbon and ash models were fair and poor, respectively. The results indicate that near infrared spectroscopy has the potential to predict quality indices of dedicated energy crops, however the models must be further validated on a wider range of samples prior to implementation. The utilization of such models would assist in the optimal use of the feedstock based on its biomass properties.

Internal rents and corporate property management: a study into the use of internal rents in UK corporate organisations

Research in the late 1980s showed that in many corporate real estates users were not fully aware of the full extent of their property holdings. In many cases, not only was the value of the holdings unknown, but there was uncertainty over the actual extent of ownership within the portfolio. This resulted in a large number of corporate occupiers reviewing their property holdings during the 1990s, initially to create a definitive asset register, but also to benefit from an more efficient use of space. Good management of corporately owned property assets is of equal importance as the management of other principal resources within the company. A comprehensive asset register can be seen as the first step towards a rational property audit. For the effective, efficient and economic delivery of services, it is vital that all property holdings are utilised to the best advantage. This requires that the property provider and the property user are both fully conversant with the value of the property holding and that an asset/internal rent/charge is made accordingly. The advantages of internal rent charging are twofold. Firstly, it requires the occupying department to “contribute” an amount to the business equivalent to the open market rental value of the space that it occupies. This prevents the treating of space as a free good and, as individual profit centres, each department will then rationalise its holdings to minimise its costs. The second advantage is from a strategic viewpoint. By charging an asset rent, the holding department can identify the performance of its real estate holdings. This can then be compared to an internal or external benchmark to help determine whether the company has adopted the most efficient tenure pattern for its properties. This paper investigates the use of internal rents by UK-based corporate businesses and explains internal rents as a form of transfer pricing in the context of management and responsibility accounting. The research finds that the majority of charging organisations introduced internal rents primarily to help calculate true profits at the business unit level. However, less than 10% of the charging organisations introduced internal rents primarily to capture the return on assets within the business. There was also a sizeable element of the market who had no plans to introduce internal rents. Here, it appears that, despite academic and professional views that internal rents are beneficial in improving the efficient use of property, opinion at the business and operational level has not universally accepted this proposition.

Quantifying the value of ecosystem services: a case study of honeybee pollination in the UK

There is concern that insect pollinators, such as honey bees, are currently declining in abundance, and are under serious threat from environmental changes such as habitat loss and climate change; the use of pesticides in intensive agriculture, and emerging diseases. This paper aims to evaluate how much public support there would be in preventing further decline to maintain the current number of bee colonies in the UK. The contingent valuation method (CVM) was used to obtain the willingness to pay (WTP) for a theoretical pollinator protection policy. Respondents were asked whether they would be WTP to support such a policy and how much would they pay? Results show that the mean WTP to support the bee protection policy was £1.37/week/household. Based on there being 24.9 million households in the UK, this is equivalent to £1.77 billion per year. This total value can show the importance of maintaining the overall pollination service to policy makers. We compare this total with estimates obtained using a simple market valuation of pollination for the UK.

A typology of internet users based on comparative affective states: evidence from eight countries

Purpose - The role of affective states in consumer behaviour is well established. However, no study to date has empirically examined online affective states as a basis for constructing typologies of internet users and for assessing the invariance of clusters across national cultures. Design/methodology/approach - Four focus groups with internet users were carried out to adapt a set of affective states identified from the literature to the online environment. An online survey was then designed to collect data from internet users in four Western and four East Asian countries. Findings - Based on a cluster analysis, six cross-national market segments are identified and labelled "Positive Online Affectivists", "Offline Affectivists", "On/Off-line Negative Affectivists", "Online Affectivists", "Indistinguishable Affectivists", and "Negative Offline Affectivists". The resulting clusters discriminate on the basis of national culture, gender, working status and perceptions towards online brands. Practical implications - Marketers may use this typology to segment internet users in order to predict their perceptions towards online brands. Also, a standardised approach to e-marketing is not recommended on the basis of affective state-based segmentation. Originality/value - This is the first study proposing affective state-based typologies of internet users using comparable samples from four Western and four East Asian countries.

Well-posed two-point initial-boundary value problems with arbitrary boundary conditions

We study initial-boundary value problems for linear evolution equations of arbitrary spatial order, subject to arbitrary linear boundary conditions and posed on a rectangular 1-space, 1-time domain. We give a new characterisation of the boundary conditions that specify well-posed problems using Fokas' transform method. We also give a sufficient condition guaranteeing that the solution can be represented using a series. The relevant condition, the analyticity at infinity of certain meromorphic functions within particular sectors, is significantly more concrete and easier to test than the previous criterion, based on the existence of admissible functions.