On the valuation of reverse mortgages with regular tenure payments

Yung-Tsung Lee, Chou-Wen Wang and Hong-Chih Huang

Insurance: Mathematics and Economics, 2012, vol. 51, issue 2, 430-441

Abstract: For the valuation of reverse mortgages with tenure payments, this article proposes a specific analytic valuation framework with mortality risk, interest rate risk, and housing price risk that helps determine fair premiums when the present value of premiums equals the present value of contingent losses. The analytic valuation of reverse mortgages with tenure payments is more complex than the valuation with a lump sum payment. This study therefore proposes a dimension reduction technique to achieve a closed-form solution for reverse annuity mortgage insurance, conditional on the evolution of interest rates. The technique provides strong accuracy, offering important implications for lenders and insurers.

Keywords: Reverse mortgages; Annuity payments; Option pricing; Dimension reduction (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:51:y:2012:i:2:p:430-441

DOI: 10.1016/j.insmatheco.2012.06.008

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