HEDGING OF INTERNATIONAL REAL ESTATE INVESTMENTS WITH OPTIONS

Abstract

Global investments are considered because of the potential benefits that could be derived from diversifying these portfolios internationally. The potential benefits from international diversification stems from the fact that there are opportunities for portfolio risk reduction and enhanced portfolio performance to the foreign investor arises to the low return correlation of assets from different economies Foreign exchange rate risks can greatly alter the profitability of foreign real estate investments returns. Direct real estate investment data are employed to analyze the returns from the commercial sector. The effectiveness of different hedging instruments are examined with a case study built on currency options (Black-Scholes Model).