Study On The Pricing Of Mortgage Guarantee Insurance

Mortgage loan has become an important type of loans that in our commercial banks businesses. Chinese real estate market has entered the structural adjustment stage, and house price fluctuating is inevitable. The bank’s asset management has focused on the mortgage loan risk management Mortgage insurance is an important tool for bank to control credit risk. The risk-sharing mechanism in mortgage insurance plays an important role in the mortgage loan markets and its secondary markets development.However, Chinese mortgage insurance development falls far behind of international mortgage insurance markets. One of the main reason lies on the pricing issue of the insurance contract. The pricing of such a contracts is a challenging task even in US where data is sufficient and available. The task is more challenging in the case of emerging markets. But the study on the pricing of mortgage insurance in China is scanty. This paper focus on the pricing issue of mortgage insurance, and the main contents and idea are organized as below:Chapter1is introduction. It starts with research background and research significance, then reviews the domestic and foreign literature, and comes up with the research object and research content. In the end it points out the innovation and research problem of this paperChapter2is an introduction of mortgage guarantee insurance. It first introduces the mortgage and its risk, and outlines different insurance tools to deal with those risks. It then describe the definition, characteristic and type of mortgage guarantee insurance, and point out default risk and house value risk is are covered by mortgage guarantee insurance.Chapter3is the pricing model of mortgage guarantee insurance. This part start with the analysis of European option-like characteristic of mortgage guarantee insurance,and introduces the pricing framework of such an insurance. The pricing framework in this part is a base pricing model. This paper extended the base model from default risk model and house value risk model respectively.Chapter4introduces the extended pricing model. Based on the analysis in Chapter3, this part gives a detail description of extended default risk model and house value risk. The extended default risk model take a consideration of prepayment risk in mortgage loans by using the multiple decrement risk model. The extended house value risk model use ARMA-GARCH model to simulate the house value returns and get a new model to describe the house value risk.Chapter5is the application of the extended pricing model. This part calculates mortgage guarantee insurance price using the extended model. And a parameter sensitivity analysis is performed on the new model. The analysis result shows that an increase in the default risk, loan to house value and interest rate charged in the mortgage loans will lead to an increase in insurance price; an increase in the prepayment risk will lead to a decrease in the insurance price.Chapter6is the conclusion of this paper. It mainly summaries the main content of the paper and discusses the advantages and disadvantages of the extended pricing model.