The impact of external factors on the volatility of your portfolio

One of the most significant factors influencing the volatility of returns in Commercial Real Estate is the economy.
By modelling risk in the key economic factors and combining this with detailed projections of the cash flows, ProMS is the only solution which gives the whole picture of CRE risk.

Thousands of possible economic scenarios are produced using an econometric model that preserves key historic features in its forward-looking scenarios, such as trends, inter-series correlations, short-run dynamics, volatilities and tail-risk. The model is published on a quarterly basis and incorporates the latest economic data.

The economic model comprises the key indices that determine CRE loan and investment performance:
  • Capital values
  • Rental values
  • Yields
  • Interest rates
  • Inflation
  • Tenant bankruptcy rates
The model incorporates a carefully modelled and historically accurate element of random shocks in its projections to create a broad range of plausible outcomes, generating a realistic spread of potential scenarios against which loan or asset performance can be predicted. The model has been back tested to ensure strong predictive performance through the cycle, and projects plausible trends and volatilities into the future.

For more information, click here to see our UK Property Risk Indicators
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