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The past 12 to 18 months have been dreadful for retail investment sales not just in Oklahoma, but all over the country. The increasing number of retailers who have either gone bankrupt or have been forced to significantly downsize due to sullen economic conditions have caused retail vacancy to soar both locally and nationally. This increased vacancy has also caused lenders to almost completely abandon retail properties and turn their attention to underwriting less volatile commercial property types. Even though investment activity is expected to remain very slow throughout 2010 as listing inventories remain low and financing is still difficult to obtain, there is one bright spot beginning to emerge. Over the past few months, the Oklahoma commercial market has seen a slight uptick in tri...
Real property tax—Sale price of property subject to long-term lease used as value.
How a credit default swap can be used to hedge the counterparty risk associated with a portfolio of leases and, at the same time, increase the net present value of uncertain lease cash flows is illustrated. Asset finance firms will find that the hedge both reduces the variability of cash flows and hence increases the value of the firm. The article explores the concept of creditworthiness and credit default swaps, constructs a sample portfolio, and evaluates the use of credit default swaps to hedge default risk. The hedged diversified portfolios had higher expected NPVs and higher expected return-to-risk ratios than the unhedged diversified portfolio. A firm with advanced mathematical knowledge could use a proxy hedge such as a basket CDS on the industry sector of the small firm.
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