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

Jackie Li; Atsuyuki Kogure; Jia Liu

doi:10.3390/risks7010011

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

Jackie Li, Atsuyuki Kogure, Jia Liu

Department of Actuarial Studies and Business Analytics

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

11 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 language	English
Article number	11
Pages (from-to)	1-12
Number of pages	12
Journal	Risks
Volume	7
Issue number	1
DOIs	https://doi.org/10.3390/risks7010011
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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10.3390/risks7010011Licence: CC BY

Publisher version (open access)Final published version, 2.88 MBLicence: CC BY

Cite this

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

Abstract

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Keywords

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