Valuation of no-negative-equity guarantees with a lower reflecting barrier

Author:

Thomas R. GuyORCID

Abstract

AbstractIf the general level of house prices falls a long way, policymakers may introduce new policies which seek to support prices. This paper considers the effect of such interventions on the valuation of no-negative-equity guarantees (NNEG) in equity release mortgages. I model interventions by a reflecting barrier expressed as a fraction of the current level of house prices. Reflection at the barrier is instantaneous, so the no-arbitrage property is preserved, and hence risk-neutral valuation of NNEG is possible. The reflecting barrier can alternatively be justified as a representation of the different economic nature of the underlying housing (and particularly freehold land) assets in NNEG valuations, compared with the underlying equity assets in many other option valuations.

Publisher

Cambridge University Press (CUP)

Subject

Statistics, Probability and Uncertainty,Economics and Econometrics,Statistics and Probability

Reference31 articles.

1. The Wealth Effect

2. Eight valuation methods in financial mathematics: the Black-Scholes formula as an example;Andreasen;Mathematical Scientist,1998

3. A Cautionary Note on the Put-Call Parity under an Asset Pricing Model with a Lower Reflecting Barrier

4. The Conditional Probability Density Function for a Reflected Brownian Motion

5. Turnbull, C. (2019b). On the Actuarial Treatment of Equity Release Mortgages –Part 2. Available online at the address https://craigturnbullfia.com/ [accessed 29-Sep-2019].

Cited by 5 articles. 订阅此论文施引文献 订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献

1. Looking toward the future: Well-ageing solutions from the equity release mortgage market;Reference Module in Social Sciences;2024

2. Arbitrage problems with reflected geometric Brownian motion;Finance and Stochastics;2023-12-20

3. Long-term option pricing with a lower reflecting barrier;Annals of Actuarial Science;2023-01-05

4. Arbitrage Problems with Reflected Geometric Brownian motion;SSRN Electronic Journal;2022

5. Valuation of Reverse Mortgages with Default Risk Models;The Journal of Real Estate Finance and Economics;2021-09-29

同舟云学术

1.学者识别学者识别

2.学术分析学术分析

3.人才评估人才评估

"同舟云学术"是以全球学者为主线,采集、加工和组织学术论文而形成的新型学术文献查询和分析系统,可以对全球学者进行文献检索和人才价值评估。用户可以通过关注某些学科领域的顶尖人物而持续追踪该领域的学科进展和研究前沿。经过近期的数据扩容,当前同舟云学术共收录了国内外主流学术期刊6万余种,收集的期刊论文及会议论文总量共计约1.5亿篇,并以每天添加12000余篇中外论文的速度递增。我们也可以为用户提供个性化、定制化的学者数据。欢迎来电咨询!咨询电话:010-8811{复制后删除}0370

www.globalauthorid.com

TOP

Copyright © 2019-2024 北京同舟云网络信息技术有限公司
京公网安备11010802033243号  京ICP备18003416号-3