Multivariate Risk-Neutral Pricing of Reverse Mortgages under the Bayesian Framework

Jackie Li, Atsuyuki Kogure and Jia Liu
Additional contact information
Jackie Li: Department of Actuarial Studies and Business Analytics, Macquarie University, Macquarie Park, NSW 2109, Australia
Atsuyuki Kogure: Faculty of Business Administration, Tokyo Keizai University, Tokyo 185-8502, Japan
Jia Liu: Department of Actuarial Studies and Business Analytics, Macquarie University, Macquarie Park, NSW 2109, Australia

Risks, 2019, vol. 7, issue 1, 1-12

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.

Keywords: reverse mortgage; house price risk; interest rate risk; longevity risk; risk-neutralisation; principle of maximum entropy; Bayesian modelling (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.mdpi.com/2227-9091/7/1/11/pdf (application/pdf)
https://www.mdpi.com/2227-9091/7/1/11/ (text/html)

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:gam:jrisks:v:7:y:2019:i:1:p:11-:d:200525

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().