| In our country, the housing problems for the urban residents have arisen along with the industrialization and urbanization and with the increasing of population size, especially since the reformation of the housing policy in1988. The residents only can purchase house through individual home loan mortgage. With the rapid development of home loan mortgage, banks have been increasingly subjected to the exposure of mortgage default risk. Mortgage insurance is a safe way for banks to avoid and transfer the risk, therefore, how to properly and precisely price for mortgage insurance is the key for the problem. This paper builds the model for the pricing issue of mortgage insurance based on option-pricing approach.The price of option lies on the magnitude borrowers’default risk, so this paper gives the basic model by assuming non-installment credit, and then derives extends model to installment credit. In the model, the volatility of house prices can be decomposed into a systematic shock and an idiosyncratic component. This paper uses Monte-Carlo simulation to get the solution of the model by MATLAB and derives the dependence on the important factors of the default probability or average default loss. In the consideration of information asymmetry, insurance company should take the variance of default loss into account as "security charge", when pricing the mortgage insurance.According to the analysis, the insurance companies should focus on product diversification, parameters setting in the model, the evolution of the real estate market and so on. And the fair interest rate and the reasonable cost of default should be enforced by the banks, with the purpose of risk management. Finally, according the argument in this paper, the down payment for the home sale price can be reduced to the people who buy their houses for the first time. The mortgage insurance plays an important role in the business of home loan mortgage, with a good exterior operation environment is built up. |
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