Asset-Backed Securitization in Singapore: Value of Embedded Buy-Back Options

Posted: 28 Apr 2003

See all articles by Tien Foo Sing

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate

Seow Eng Ong

National University of Singapore (NUS) - Department of Real Estate

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law

Abstract

Asset backed securities have been promoted as an important financing instrument for property developers to raise capital in Singapore. In 1999 alone, $41.92 billion worth of bonds have been issued via the securitization of six commercial properties and one residential condominium project under construction. Buy-back option is a unique feature embedded in the asset backed securitization (ABS) in Singapore, which allows the originator to retain a contingent claim on the upside potential of the asset price. Based on the multi-period binomial option pricing framework proposed by Cox, Ross and Rubinstein (1979), the prices of the options embedded in the ABS contracts are estimated. Using the securitization of the 132,111 square feet 268 Orchard Road office building for illustration, the premium of the options embedded in the 10-year ABS deal was estimated at $428.47 million, or 15.48% of the bond value. Recognition of the value of embedded options is important for structuring a fair and transparent ABS deal.

Keywords: asset backed securitization, buy-back option, option premiums

Suggested Citation

Sing, Tien Foo and Ong, Seow Eng and Sirmans, C. F., Asset-Backed Securitization in Singapore: Value of Embedded Buy-Back Options. Available at SSRN: https://ssrn.com/abstract=366861

Tien Foo Sing (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Seow Eng Ong

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore
01-65-6516-3552 (Phone)
01-65-6774-8684 (Fax)

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law ( email )

Tallahasse, FL 32306
United States
850 644-4076 (Phone)

HOME PAGE: http://www.cob.fsu.edu/rmi

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