Pricing various types of mortgage insurances with disposal and discount costs under a mean-reverting Lévy housing price process

Xiaoye Gong, Ying Li, Yang Che Wu, Wan Shiou Yang

Research output: Contribution to journalArticle

Abstract

This paper studies various types of mortgage insurance contract which show different series of mortgage cash flow. The valuations of such contracts are expressed by analytical pricing formulas with the disposal cost and price discount incurred in repossessing and selling collaterals. The dynamics of housing price is assumed to follow a mean-reverting Lévy process. Sensitivity analysis shows that initial housing price and coverage rate, mean-reverting rate, and characteristics of individual housing price all play important roles in valuing MI contracts. Two actual costs increase the premium of MI contracts.

Original languageEnglish
Article number124561
JournalPhysica A: Statistical Mechanics and its Applications
Volume551
DOIs
Publication statusPublished - 2020 Aug 1

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Condensed Matter Physics

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