Modeling the behavior of real asset prices

✍ Scribed by Taewon Kim

• Publisher: Springer US
• Year: 1991
• Tongue: English
• Weight: 489 KB
• Volume: 4
• Category: Article
• ISSN: 0895-5638
• DOI: 10.1007/bf00161929

✦ Synopsis

Recently there has been much research treating housing and other real assets as financial claims, primarily in order to value their derivative assets, such as mortgages and mortgage-backed securities. Real asset prices are then typically modeled as a lognormal process, in the same manner that has traditionally been applied to firm value. The service flow or implicit value of a house is thus considered, in analogy with stock dividends, to be a fixed proportion of the fluctuating house price. We consider the appropriateness of this formulation and draw some distinctions between real assets, such as a house, and investment enterprises, such as a firm. We then propose an alternative method of formulating the service flow and the price of real assets which seems more appropilate to the economic characteristic of such assets.