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Please use this identifier to cite or link to this item: https://ah.nccu.edu.tw/handle/140.119/80618


Title: On the valuation of reverse mortgage insurance
Authors: Wang, Chou-Wen;Huang, Hong-Chih;Lee, Yung-Tsung
王昭文;黃泓智
Contributors: 風管系
Date: 2016-05
Issue Date: 2016-01-15 15:31:27 (UTC+8)
Abstract: This article presents a closed-form formula for calculating the loan-to-value (LTV) ratio in an adjusted-rate reverse mortgage (RM) with a lump sum payment. Previous literatures consider the pricing of RM in a constant interest rate assumption and price it on fixed-rate loans. This paper successfully considers the dynamic of interest rate and the adjustable-rate RM simultaneously. This paper also considers the housing price shock into the valuation model. Assuming that house prices follow a jump diffusion process with a stochastic interest rate and that the loan interest rate is adjusted instantaneously according to the short rate, we demonstrate that the LTV ratio is independent of the term structure of interest rates. This argument holds even when housing prices follow a general process: an exponential Lévy process. In addition, the HECM (Home Equity Conversion Mortgage) program may be not sustainable, especially for a higher level of housing price volatility. Finally, when the loan interest rate is adjusted periodically according to the LIBOR rate, our finding reveals that the LTV ratio is insensitive to the parameters characterizing the CIR model.
Relation: Scandinavian Actuarial Journal, 2016(4), 293-318
Data Type: article
DOI link: http://dx.doi.org/10.1080/03461238.2014.925967
Appears in Collections:[Department of Risk Management and Insurance] Periodical Articles

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