Estimating Regulatory Capital Requirements for Reverse Mortgages: An International Comparison

Iván de la Fuente (), Eliseo Navarro () and Gregorio Serna ()
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Iván de la Fuente: University of Alcala
Eliseo Navarro: University of Alcala
Gregorio Serna: University of Alcala

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2018, pp 301-304 from Springer

Abstract: Abstract In this paper, we estimate the value of the no-negative-equity guarantee (NNEG) embedded in reverse mortgage contracts and develop a method for calculating regulatory capital requirements according to Basel II and III. We employ a Monte Carlo simulation method that assumes an ARMA-EGARCH process for house prices in four European countries: France, Germany, Spain and the United Kingdom. The results show different estimated values for the NNEG among countries. Specifically, the value of the NNEG tends to be related to the level of the interest rates, the rental yield and house price volatility in each country, as well as the age of the borrower. Different values for value-at-risk and the expected shortfall among countries are also found, which depend on the volatility of each country’s house price series.

Keywords: Reverse mortgages; Option pricing; No-negative-equity guarantee; Mortality modeling; House price modeling; Regulatory capital requirements (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-89824-7_54

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DOI: 10.1007/978-3-319-89824-7_54

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