Multivariate risk-neutral pricing of reverse mortgages under the Bayesian framework

Jackie Li, Atsuyuki Kogure and Jia Liu

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.

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Year of publication:	2019
Authors:	Li, Jackie ; Kogure, Atsuyuki ; Liu, Jia
Subject:	reverse mortgage \| house price risk \| interest rate risk \| longevity risk \| risk-neutralisation \| principle of maximum entropy \| Bayesian modelling \| Immobilienpreis \| Real estate price \| Risiko \| Risk \| Bayes-Statistik \| Bayesian inference \| Zinsrisiko \| Interest rate risk \| Entropie \| Entropy \| Theorie \| Theory \| Hypothek \| Mortgage \| Umkehrhypothek \| Reverse mortgage \| Sterblichkeit \| Mortality \| Wohneigentum \| Homeownership \| Zins \| Interest rate \| Risikoprämie \| Risk premium

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Type of publication:	Article
Type of publication (narrower categories):	Aufsatz in Zeitschrift ; Article in journal
Language:	English
Other identifiers:	10.3390/risks7010011 [DOI] hdl:10419/257849 [Handle]
Source:	ECONIS - Online Catalogue of the ZBW

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