A Bayesian Multivariate Risk-Neutral Method for Pricing Reverse Mortgages

Atsuyuki Kogure, Jackie Li and Shinichi Kamiya

North American Actuarial Journal, 2014, vol. 18, issue 1, 242-257

Abstract: In this article, we propose a Bayesian multivariate framework to price reverse mortgages that involve several risks in both insurance and financial sectors (e.g., mortality rates, interest rates, and house prices). Our method is a multivariate extension of the Bayesian risk-neutral method developed by Kogure and Kurachi. We apply the proposed method to Japanese data to examine the possibility for a successful introduction of reverse mortgages into Japan. The results suggest a promising future for this new market.

Date: 2014
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DOI: 10.1080/10920277.2013.872983

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