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Valuing Mortgage Insurance Contracts in Emerging Market Economies |
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| Authors: | Ashok Bardhan Ra?a Karapand?a Branko Uro?evi? |
| Institution: | (1) Fisher Center for Real Estate and Urban Economics, Haas School of Business, University of California, Berkeley, CA 94720, USA;(2) Department of Economics and Business, Universitat Pompeu Fabra, 08005 Barcelona, Spain;(3) South European Center for Contemporary Finance, Belgrade, Serbia and Montenegro;(4) Scientific Computing Laboratory, Institue of Physics, Belgrade, Serbia and Montenegro;(5) Faculty of Economics, University of Belgrade, 11000 Belgrade, Serbia |
| Abstract: | We develop a new option-based method for the valuation of mortgage insurance contracts in closed form in an economy where agents are risk neutral. While the proposed valuation method is general and can be used in any market, it may be particularly useful in emerging market economies where other existing methods may be either inappropriate or are too difficult to implement because of the lack of relevant data. As an application, we price a typical Serbian government-backed mortgage insurance contract. |
| Keywords: | mortgage insurance default rate prepayment rate black-scholes formula emerging markets |
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