A real estate derivative is a financial instrument whose value is based on the price of real estate. The core uses for real estate derivatives are: hedging positions, pre-investing assets and re-allocating a portfolio. The major products within real estate derivatives are: swaps, futures contracts, options (calls and puts) and structured products. Each of these products can use a different real estate index. Further, each property type and region can be used as a reference point for any real estate derivative. Applications Swap The most basic form of real estate derivative is a swap transaction, in which one investor, or one side, goes long and the other side goes short (finance). An investor would want to execute a swap if they thought that the market, or sector, was likely to appreciate, in which case they would go long. Alternatively, if an investor’s view was that the market would depreciate from that point, they would go short, or take the other side of that trade. Options One can apply options to real estate. A real estate Option is a contract based on a time horizon and an expected property value. It is developed based on financial options contracts and adopted to individual real estate assets. Call With the real estate call option, the property owner can sell an option in exchange for debt-free cash today. Investor, who buys the real estate call option benefits from property price appreciation and price volatility. Put With the real estate put option (selling price decline insurance), the investor can sell an option thus the investor underwrites price decline insurance. The property owner, who buys the option, is protected against price decline of the property. Derivative efficiencies Owning real estate assets is costly, and the transaction costs associated with purchasing commercial real estate can be prohibitive. Typical transaction costs can equal 500 - 800 basis points per transaction. Industry estimates suggest that transaction costs for commercial real estate easily surpass $10–$12 billion annually. Since the US real estate derivative market is new, the transaction costs are at this point variable. However, based on derivatives in other markets, it is anticipated that the costs will be well below the 500-800 basis points required to invest in actual real estate. Market growth The market for real estate derivatives was long overdue. Real Estate is the only major asset class that only recently developed a derivatives market. According to