A0828
Title: Structuring and pricing home equity release with alternative sharing of house price risks
Authors: Doug Andrews - University of Waterloo (Canada)
Jaideep Oberoi - SOAS University of London (United Kingdom) [presenting]
Abstract: The structure and pricing of a home-equity-release product designed for senior homeowners with a more efficient risk-sharing than traditional reverse mortgages are presented. The homeowner borrows against their home with the protection of a no-negative-equity-guarantee (NNEG), but the repayment is based on the return on a regional house-price index and a fixed premium to cover the NNEG. We illustrate the associated payoffs with the use of 20 years of home sales data from the United Kingdom (UK), alongside UK mortality data and an updated UK morbidity study. We show how the NNEG can be priced using nonparametric historical simulation, highlighting the role of basis risk in reverse mortgage pricing.
