Home Equity Insurance

42 Pages Posted: 6 Sep 2000 Last revised: 14 Sep 2022

See all articles by Robert J. Shiller

Robert J. Shiller

Yale University - Cowles Foundation; National Bureau of Economic Research (NBER); Yale University - International Center for Finance

Allan N. Weiss

Case Shiller Weiss Inc.

Multiple version iconThere are 2 versions of this paper

Date Written: August 1994

Abstract

Home equity insurance policies, policies insuring homeowners against declines in the price of their homes, would bear some resemblance both to ordinary insurance and to financial hedging vehicles. A menu of choices for the design of such policies is presented here, and conceptual issues are discussed. Choices include pass-through futures and options, in which the insurance company in effect serves as a retailer to homeowners of short positions in real estate futures markets or of put options on real estate. Another choice is a life-event-triggered insurance policy, in which the homeowner pays regular fixed insurance premia and is entitled to a claim if both there is a sufficient decline in the real estate price index and a specified life event (such as a move beyond a certain geographical distance) occurs. Pricing of the premia to cover loss experience is derived, and tables of break-even policy premia are shown, based on estimated models of Los Angeles housing prices 1971- 91.

Suggested Citation

Shiller, Robert J. and Weiss, Allan N., Home Equity Insurance (August 1994). NBER Working Paper No. w4830, Available at SSRN: https://ssrn.com/abstract=226518

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Allan N. Weiss

Case Shiller Weiss Inc. ( email )

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