The Effects of Macroeconomic Factors on Pricing Mortgage Insurance Contracts |
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| Authors: | Chia‐Chien Chang Chou‐Wen Wang Chih‐Yuan Yang |
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| Affiliation: | Chia‐Chien Chang is from National Kaohsiung University of Applied Science, Kaohsiung, Taiwan. Chou‐Wen Wang is from National Kaohsiung First University of Science and Technology, Kaohsiung, Taiwan. Chih‐Yuan Yang is from National Tsing Hua University, Hsinchu, Taiwan. Chou‐Wen Wang can be contacted via e‐mail: chouwenwang@gmail.com. |
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| Abstract: | Numerous empirical studies, including Abraham and Hendershott (1996) , Muellbauer and Murphy (1997) , Leung (2004) , and Oikarinen (2009) , have identified a significant relationship between housing prices and macroeconomic factors. Using a linear regression on the comovement of macroeconomic factors and housing prices, this article employs an option‐pricing framework to price and hedge the fair premia of mortgage insurance (MI). Our model provides improved performance in terms of MI premium pricing, especially during periods that are characterized by high housing prices. Ignoring the impacts of macroeconomic factors on housing prices will lead to an underestimation of MI premia. |
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