Abstract
In this paper, we suggest a Bayesian multivariate approach for pricing a reverse mortgage, allowing for house price risk, interest rate risk and longevity risk. We adopt the principle of maximum entropy in risk-neutralisation of these three risk components simultaneously. Our numerical results based on Australian data suggest that a reverse mortgage would be financially sustainable under the current financial environment and the model settings and assumptions.
| Original language | English |
|---|---|
| Article number | 11 |
| Pages (from-to) | 1-12 |
| Number of pages | 12 |
| Journal | Risks |
| Volume | 7 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 24 Jan 2019 |
Bibliographical note
Copyright 2019 by the authors. Licensee MDPI, Basel, Switzerland. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.Keywords
- reverse mortgage
- house price risk
- interest rate risk
- longevity risk
- risk-neutralisation
- principle of maximum entropy
- Bayesian modelling
- House price risk
- Longevity risk
- Risk-neutralisation
- Principle of maximum entropy
- Interest rate risk
- Reverse mortgage
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Cite this
Li, J., Kogure, A., & Liu, J. (2019). Multivariate risk-neutral pricing of reverse mortgages under the bayesian framework. Risks, 7(1), 1-12. [11]. https://doi.org/10.3390/risks7010011