ABSTRACT
Risk management techniques in the capital markets primarily focus on market risk using well-established techniques and risk measures such as value at risk, while the quantitative modelling of volatility and its importance is well established. This chapter considers the risk factors that real estate fund managers face, highlighting the limitations that can sometimes arise from relying upon the same frameworks a manager in the capital markets would use. It also considers the challenges faced in using property derivatives for risk management purposes. Market risk is the form of risk that has the most similarities with those concentrated on in mainstream asset classes. It is concerned with more easily identifiable and quantifiable investment risk factors and, therefore, also has the most commonalities in terms of the methods used. The underestimation of risk from a quantitative perspective has practical implications with respect to the risk measures commonly used, even down to the traditional use of standard deviation/variance as the measure of risk.
