Option pricing model of reverse mortgage loan-based on the data of Chongqing

Abstract

With the background of the aging of population of Chongqing, we attempt to build an option pricing model which giving the priority to the option pricing theory and the breakeven principle as complementary in allusion to the reverse mortgage loan with redemption right. The empirical studies and sensitivity analysis showed that different gender and age of the borrower can receive different pensions in different payment condition, the growth rate of house price and the risk-free rate have larger influence on the pricing result than the volatility of the house price.

Subject Classification:

• MSC2010
• 91G99

Keywords:

• No breakeven theory
• Housing reverses mortgage loan
• Option pricing method