The Research On Mortgage Pricing Which Based On Default Probability Measurement

Since the first individual mortgage of the Commercial Bank of China in 1992, its scale has been increasing continuously. Up to the end of 2009, the balance of individual mortgage in our country increase to 4,400 trillion RMB, taking the high 11% of the total amount of mortgage in domestic bank system. On the other hand, influenced by the international financial crisis, People'Bank lowed its minimum first payment to the rate of 20% its total mortgage to cooperate with the stimulating domestic demand policy. The total release of individual mortgage in the year of 2009 has reached 2.2 trillion RMB. With the current real estate market in the stage of structural adaptation, cyclical fluctuations are inevitable to house price, which will cause the probability of bank mortgage defaults rise. Thus, with the premise of gradual marketization of interest rate in our financial market, the most urgent issue faced by commercial banks right now, is how to properly and precisely fix price for individual mortgage to control the risks of commercial banks.This thesis analyzes the influencing top two important risk factors, interest rate and house price, which influence the price fixation of mortgage, and uses random process to describe their change of state respectively. The advance payment option and default option value implicated in mortgage will be discussed on the basis. By analyzing the merits and drawbacks of simple pricing model and structuralized model in mortgage loan, the structuralized model suitable for situation of China will be chosen to fix a price for mortgage loan with advance payment option and default option value implicated.To verify the adaptation of the model, Double-binary option pricing techniques are used to numerically solve the pricing model for mortgage loan. With the analysis of matlab program, default probability of the borrowers is obviously influenced by house price fluctuation, interest rate fluctuation, and the value ration and time-limit of the loan. And the borrower's default behavior furthers the influence the option worth of mortgage loan. Thus, with the purpose of control the risk of mortgage, regulation and control of the real estate market should be enforced, and the impact on mortgage loan from the fluctuation of the interest rate, loan value ration and exchange cost should be taken into consideration as well.