Research On Model Innovation And Dynamic Pricing Of Reverse Mortgage

Along with aging problem getting accelerated in our society and the change of family structure,how can the elderly secure their life quality after retirement is a question need to be solved.The elderly needs a way to live independently to their children and enjoy the wealth they created and accumulated in their youth.Reverse mortgage operated in developed countries as a financial product provides a way for the elderly to gain income by their own houses.Reverse mortgage is a financial instrument which allows the elderly obtain cash flows by mortgage their own houses to the bank,insurance companies and other financial institutions without moving out or changing the houses' property right.Our country has a high level of home ownership and the growth of the real estate market is quite stable.The overall environment is suitable for the development of reverse mortgage.But the development of reverse mortgage in China is now meeting a situation that both supply and demand have a poor performance.The elderly who has a house and the need of reverse mortgage doesn't want apply due to the unsuitable pricing.At the same time,financial institutions have little incentive to diversify their products because of uncontrollable risks,though they know providing reverse mortgage can exploit new markets.This article analyzes the current development of reverse mortgage in China from product model,pricing mechanism,the financial institutions that provide the mortgage,government's participation,legal mechanism and cultural identity.Through the research of the development of reverse mortgage in developed countries such as United States,European countries and Japan,the reason of the unsatisfied development in our county can be told.Lower level of government participation,lack of relevant laws,underdeveloped securitization market,traditional family values,the onefold product model and the unscientific pricing method are the important reasons that hinder the development of reverse mortgage.Among these,the onefold product model and the unscientific pricing method are the most important reasons.This article focuses on the research of model innovation and the dynamic pricing of reverse mortgage.Based on the diversification model of real estate mortgage,this paper puts forward two model innovations of reverse mortgage.By changing the payment frequency and the amount of payment,reverse mortgage can meet the different needs of different kinds of senior citizens.Assuming that the future volatility of housing values conforms to the geometric Brownian motion,using the Vasicek model to simulate the interest rate volatility,basing on the basis of Mitchell's insurance actuarial model,through the monte carlo simulation and using resold housing data in Shanghai as an example,this paper carried out an empirical simulation for reverse mortgage pricing.During the pricing,dynamic home value pricing is realized by periodically reassessing the value of the house.The results show that the value of the house cannot be reflected in the price of the reverse mortgage only use the housing value and the forecasted change rate at the beginning of the mortgage.Through dynamic pricing,when the value of the house increases,the borrower who participates in the mortgage can enjoy much more appreciation of the house value and increase the willingness to participate.At the same time,when the house value falls,financial institutions can modify the house value dynamically to adjust the whole amount value of the mortgage and reducing risk from the fluctuation of house value.