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Equity Release Products Allowing for Individual House Price Risk

11th Emerging Researchers in Ageing Conference, 2012

6 Pages Posted: 6 Jan 2013

See all articles by Adam Wenqiang Shao

Adam Wenqiang Shao

University of New South Wales - ARC Centre of Excellence in Population Ageing Research (CEPAR); Milliman

Michael Sherris

University of New South Wales - ARC Centre of Excellence in Population Ageing Research and School of Risk and Actuarial Studies; UNSW Australia Business School

Katja Hanewald

UNSW Sydney - School of Risk & Actuarial Studies and ARC Centre of Excellence in Population Ageing Research (CEPAR)

Date Written: September 30, 2012

Abstract

This paper quantifies the impacts of individual house price risk on the pricing of equity release products. An individual house price model is employed to explain house price variations by heterogeneous characteristics. A Vector Auto-Regression (VAR) model is adopted to project the overall house price index and risk-adjusted discount factors. Indices for houses with various characteristics are linked to the overall house price index by using a VAR Model with Exogenous Variables (VARX). The results indicate that the price of the No Negative Equity Guarantees (NNEGs) typically included in reverse mortgages is significantly undervalued without taking into account individual house price risk.

Keywords: equity release products, individual house price risk, no negative equity guarantee

JEL Classification: C32, G13

Suggested Citation

Shao, Adam Wenqiang and Sherris, Michael and Hanewald, Katja, Equity Release Products Allowing for Individual House Price Risk (September 30, 2012). 11th Emerging Researchers in Ageing Conference, 2012, Available at SSRN: https://ssrn.com/abstract=2197021

Adam Wenqiang Shao (Contact Author)

University of New South Wales - ARC Centre of Excellence in Population Ageing Research (CEPAR) ( email )

CEPAR, Level 3
East Wing, NICTA Building, UNSW
Sydney, New South Wales NSW 2052
Australia

Milliman ( email )

One Pennsylvania Plaza 38th Floor
New York, NY 10119
United States

Michael Sherris

University of New South Wales - ARC Centre of Excellence in Population Ageing Research and School of Risk and Actuarial Studies ( email )

UNSW Business School
Risk and Actuarial Studies
Sydney, NSW 2052
Australia
+61 2 9385 2333 (Phone)
+61 2 9385 1883 (Fax)

HOME PAGE: http://www.asb.unsw.edu.au/schools/Pages/MichaelSherris.aspx

UNSW Australia Business School ( email )

Sydney, NSW 2052
Australia

Katja Hanewald

UNSW Sydney - School of Risk & Actuarial Studies and ARC Centre of Excellence in Population Ageing Research (CEPAR) ( email )

School of Risk & Actuarial Studies
UNSW Sydney
Sydney, New South Wales NSW 2052
Australia

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