Real Estate Indexation Model based on Estonian Land Board summary statistics

Abstract

The objective of this thesis is to develop a real estate indexation model that accurately predicts the value of real estate collateral. The resulting real estate indexation model is essential for adjusting collateral valuations in response to market changes. The model developed during this thesis will be widely used within the bank for portfolio credit risk assessment, serving as an input for internal Loss Given Default estimates or capital requirement calculations. The thesis is divided into two parts. The first part gives background on topics necessary for understanding the subsequent chapters, describing the market price index used for real estate indexation and the principles of clustering. The second part presents the results of time series clustering and develops indexation models based on these results to describe the value of collateral in relation to the current market conditions.