Pricing various types of mortgage insurances with disposal and discount costs under a mean-reverting Lévy housing price process

Xiaoye Gong, Ying Li, Yang-Che Wu and Wan-Shiou Yang

Physica A: Statistical Mechanics and its Applications, 2020, vol. 551, issue C

Abstract: This paper studies various types of mortgage insurance contract which show different series of mortgage cash flow. The valuations of such contracts are expressed by analytical pricing formulas with the disposal cost and price discount incurred in repossessing and selling collaterals. The dynamics of housing price is assumed to follow a mean-reverting Lévy process. Sensitivity analysis shows that initial housing price and coverage rate, mean-reverting rate, and characteristics of individual housing price all play important roles in valuing MI contracts. Two actual costs increase the premium of MI contracts.

Keywords: Mortgage insurance; Moral hazard risk; Disposal cost; Mean-reverting process; Lévy process (search for similar items in EconPapers)
JEL-codes: C46 G12 G22 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437120302648
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:551:y:2020:i:c:s0378437120302648

DOI: 10.1016/j.physa.2020.124561

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().