Research On Pricing Model Of Reverse Mortgage

China has already become an aging society followed with the accelerating age tendency. According to statistics, the population aged over 60 has already accounted for 10.96% of the total population, the percent of the population aged over 65 also comes to a 7%, and the process is undergoing at the rate of 3.2%. However, China is transforming from the old endowment insurance to the new system and the social security systems lag far behind, the situation of old-age care is more complex and severe in china. In addition, the percent of the city residents having their own house has come to 80%, but the most old people is house- rich and income- poor. At abroad, Reverse mortgage (RM) is at such circumstance to grow and flourish. It not only can make financial institutions gain profits but also goes a long way towards solving the problem of old-age care and plays an active role in building a harmonious society.Reverse mortgage (RM) is the most successful product of the home equity conversion (HEC), mainly designed for the elderly people. RM release equity in housing to boost elderly consumption but not change the utility of housing. But the complicated operational process involves many factors such as real estate, fixing interest rate, life expectancy and social values. But the overseas successful operational mode isn't suitable for our market. Up to now, no suitable program has been put forward. Finance, insurance, financial institutions and research institutes discuss the question enthusiastically.The first chapter analyzes in detail the concept, characteristics of Reverse Mortgage and its operation status and situation in developed countries, the principle and experience of Reverse Mortgage is described clearly. The first chapter also analyzes necessity and feasibility of application RM in China. Then, on the basis of summarizing the mature experience abroad, this paper build lump-sum and annuity options model in accordance with two major types in Chapter 2. Chapter 3 improves the annuity options model by regard for the increasing of pension and proves the pricing formulas. Chapter 4 calculates annuity through mathematical simulation. Chapter 5 applies the theory of option pricing to price the RM.This article's target is to provide the academic background and operation way for Reverse Mortgage's application in china.