The Valuation of Reverse Mortgage Insurance Contract

• Main Authors: Tsung-Li Chi, 紀宗利
• Other Authors: Mingchun Lin
• Format: Others
• Language: en_US
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/dc55jq

博士 === 國立高雄第一科技大學 === 管理研究所 === 96 === This dissertation analyzed the reverse mortgages in United States (U.S.) after building reverse mortgage insurance pricing model using the framework of European put options. The previous literature on mortgage valuation typically assumes that housing prices follow a geometric Brownian motion but the assumption of the change of housing price which evolve according to GBM has not provided a good fit for actual housing price data (Kuo,1996). Hence, this dissertation based on published U.S. housing prices data from Federal Housing Financial Board to set up a more realistic housing price model rather than assumed that housing prices follow a geometric Brownian motion. For empirical analysis the housing price follow MA(1) process and then apply the empirically estimated housing price model through the framework of European put options to build reverse mortgage insurance pricing model. According to pricing premium model, used it to calculate the fair reverse mortgage insurance premium to charge. This dissertation show that the stochastic model with realistic housing price model that follow MA (1) type process is fitter than stochastic model with GBM in modeling the reverse mortgage insurance contract when pricing insurance premium. It is true that the estimated coefficient of MA (1) type process has positive effects on the reverse mortgage insurance premium. That implied that insurance premium is overestimated and using stochastic model with GBM to evaluate the reverse mortgage insurance contract could cause significant mispricing. In numerical analysis, the reverse mortgage insurance pricing model with undetermined parameters: the findings are that all of the parameters of the survival probability ( ); the housing price, ; the volatility of housing price ; the estimated coefficient are important factors in determining the value of the reverse mortgage insurance premium. The housing price has negative effects on relationship reverse mortgage insurance premium. The other parameters have positive effects on relationship reverse mortgage insurance premium.