An approximation approach for valuing reverse mortgages
Larry J. Prather and
Journal of Housing Economics, 2014, vol. 25, issue C, 39-52
We derive an approximate pricing formula for use in reverse mortgage valuation that allows the house price and interest rate to be stochastic with a deterministic distribution of termination time. We compare the results from the approximate pricing formula to a simulation and find that the approximate pricing formula can significantly reduce computational intensity and provide a close approximation to simulation results. The approximation approach enables reverse mortgage holders to undertake complicated portfolio optimization and hedging analyses.
Keywords: G21; Reverse mortgage; Longevity risk; Option pricing (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:25:y:2014:i:c:p:39-52
Access Statistics for this article
Journal of Housing Economics is currently edited by H. O. Pollakowski
More articles in Journal of Housing Economics from Elsevier
Bibliographic data for series maintained by Haili He ().