Study On Introducing And Pricing Of Mortgage Default Insurance In China

Mortgage insurance is one of the mortgage derivatives. Applicants can achieve the goal of reducing down payment ratio and a higher sum of loans by the guarantee function of MI. This could help more to fulfill their dreams of owning a house and has a significant meaning of stimulating housing consumption. Meanwhile, when providing insurance, the insurers will check the quality of loans through strict inspection and approval system, this could, to some extent, also be a way of "credit enhancement", which can in turn promote the standardization of primary mortgage market. This is the reason why mortgage insurance can be widely spread in the international mortgage market.However, compared with the fiery momentum in the international mortgage insurance market, the domestic market has some hysteresis. So far there is not yet a political agency providing mortgage insurances. Most insurance coverage is also about an integration of life, property and credit insurance. And the products themselves, also have much deficiency. Therefore, our paper points out the necessity of improving our mortgage insurance system, based on an analysis of our current financial market as well as the residential mortgage insurance market,In addition, the premium of MI is undoubtedly a crucial issue in reaching a contact no matter for the insurance company, the borrower or the lender. Pricing of insurance products is always the core technology of insurance development. However, the current domestic research on pricing of MI are mainly based on non-option theories, and cannot adequately consider the impact of housing price fluctuations on the problem of pricing. On the other hand, facing the ever-changing international financial environment, the travail of financial crisis-which was originated from subprime loan crisis, has not yet exhausted, this also brings new challenges for the pricing of MI.Therefore, the paper mainly discusses the pricing method of mortgage insurance. This is also the core of this article. On the basis of previous studies, with full account of the new environment, our paper gives a further analysis of the possible impact of the clustering of mortgage defaults, the diversification effect of underlying property pools and mortgage insurers’information advantage on MI pricing. Unlike the previous studies, our model partitions the volatility of collateralized property prices into idiosyncratic volatility and systematic volatility in order to conduct an in-depth investigation for the effects of these two categories of shocks. Our modeling results demonstrate that although the rising number of pooled mortgage loans can reduce the volatility of average default losses, the increasing correlation between underlying collateralized properties can also lead to the volatility clustering of these losses, therefore shedding new lights on the pricing issue of mortgage insurance premiums.This article is organized as follows:The first part is an introduction of the meaning of our study, followed by a literature review. The second part is the qualitative analysis of the country’s current development situations of MI. The third part is the preparation of the model. The fourth part gives the pricing model of MI under the circumstances of single borrower. The fifth part extends the above model to the situation of multiple borrowers. Part Ⅵ is a summary of the full text, and then gives some suggestions for the perfection of China’s mortgage insurance system.The main innovation of this paper:1, This article makes the point of view that there does not exist real MI system in China, and further points the feasibility and hardness for developing this system respectively.2, The paper extends the basic model to the situation of multiple borrowers, partitions the volatility of housing prices into idiosyncratic volatility and systematic volatility, and emphasizes the effects of parameter p and the diversification of mortgage loans on MI pricing.