The Research On Real Estate Mortgage Pricing

With fast development of real estate in China, the scale of real estate mortgage become bigger and bigger. At the same time, securitized mortgage instruments will enter finance market. But these need higher level of risk management. Accounting to foreign experiences of real estate finance, these finance products requires more complex financing pricing technical. This paper begins to analyses the two main factors of impacting the mortgage price including prepayment and default risks. Meanwhile, this paper analyses other fiction factors such as the difference of borrowers'senses, market costs, exogenous intermitting factors. Moreover, this paper separate market costs into two types cost (explicit and implicit cost). In uncertainty fiction circumstance, this paper constructs the two factors mortgage pricing model including interest rate, house price and other factor models. This paper uses the bivariate binomial tree method in operating the pricing model. The bivariate binomial tree method bases on the binomial tree method, which constructs the net tree map with variable is transformed twice., and backward operates from mortgage expiration on the point of net tree map. In the example, this paper describes the process how to confirm the model parameters. From the example analysis, it can be conclude that mortgage price haves distinct option characteristics, and the movement of interest rate and house price will sway the mortgage price. Therefore, strengtheningly governing the interest rate and real estate market avoiding economy being sick is very important. Secondly, deal cost can prevent borrower from optimal execute prepayment and default option, and increases the mortgage price, and protects the loaner's interest. Moreover, this paper separate the deal cost into two parts (explicit cost and implicit cost). Explicit cost and implicit cost differently affect mortgage value. Explicit cost plays more role in the mortgage value than implicit cost because explicit cost not only directly constitute the mortgage but also reduces the option value boundary condition, but implicit cost only reduces the option value boundary condition and play smaller role to mortgage value. In China, lots of loaner have arrange to take measure to prevent borrower's action in the explicit cost aspect (such as prepayment penal sum, increasing commission charge) . However, the role of implicit cost can't be ignored. To the borrower, the implicit cost isn't so rigid as the explicit cost. Consequently, implicit cost can add risk control method to the loaner. On the side, addition of borrower's sense can increase option value and reduces the mortgage price in the example. But it isn't certain to the role of exogenous intermitting factors.