Multivariate risk-neutral pricing of reverse mortgages under the bayesian framework

Jackie Li, Atsuyuki Kogure, Jia Liu

Research output: Contribution to journalArticle

1 Citation (Scopus)
8 Downloads (Pure)

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 languageEnglish
Article number11
Pages (from-to)1-12
Number of pages12
JournalRisks
Volume7
Issue number1
DOIs
Publication statusPublished - 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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