Home Equity Insurance

Robert Shiller and Allan N. Weiss
Additional contact information
Allan N. Weiss: Case Shiller Weiss, Inc.

No 1074, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Home equity insurance policies, policies insuring homeowners against declines in the price of their homes, would bear some resemblance both to ordinary insurance and to financial hedging vehicles. A menu of choices for the design of such policies is presented here, and conceptual issues are discussed. Choices include pass-through futures and options, in which the insurance company in effect serves as a retailer to homeowners of short positions in real estate futures markets or of put options on real estate. Another choice is a life-event-triggered insurance policy, in which the homeowner pays regular fixed insurance premia and is entitled to a claim if both there is a sufficient decline in the real estate price index and a specified life event (such as a move beyond a certain geographical distance) occurs. Pricing of the premia to cover loss experience is derived, and tables of break-even policy premia are shown, based on estimated models of Los Angeles housing prices 1971-91.

Keywords: Real estate risk; Insurance; Hedging; Mortgages (search for similar items in EconPapers)
Pages: 53 pages
Date: 1994-07
Note: CFP 1007.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published in Journal of Real Estate Finance and Economics (1999), 19(1): 21-47

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Related works:
Journal Article: Home Equity Insurance (1999)
Working Paper: Home Equity Insurance (1994)
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