Model risk in risk analysis for no-negative-equity-guarantees

Jr Wei Huang, Sharon S. Yang, Chuang Chang Chang

研究成果: 雜誌貢獻期刊論文同行評審

1 引文 斯高帕斯(Scopus)


Understanding the risk for No-Negative-Equity-Guarantees (NNEGs) requires the proper modeling of the housing return, interest rate, and mortality rate dynamics. This article investigates the model risk for the risk measures of NNEGs by calculating the Value-at-Risk (VaR) and Conditional-Tail-Expectation (CTE) from the provider perspective, with an emphasis on the housing price return model. Therefore, we propose a jump ARMA-GARCH model, according to nationwide house price return data in the UK. Interest rate and mortality rate dynamics are assumed to follow the CIR model and the CBD model, respectively. Our numerical analyses reveal that the housing price risk, interest-rate risk, and longevity risk can affect the VaR and CTE of NNEGs, with the impact being as significant as that for housing risk. The VaR and CTE of NNEGs will be greater for female borrowers than for male borrowers, essentially because females have a longer life expectancy. The proposed framework can help financial institutions manage the major three risk factors for NNEGs and assist in meeting the regulator’s concerns.

頁(從 - 到)87-110
期刊Journal of Derivatives
出版狀態已出版 - 6月 2021


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