1. An application of risk theory to mortgage lending.
- Author
-
Akahori, J., Constantinescu, C., Imamura, Y., and Pham, H. H.
- Subjects
MORTGAGE loans ,LOAN reimbursement ,ASYMPTOTIC distribution ,CREDIT insurance ,CASH flow ,INTEGRO-differential equations ,FINANCIAL planning - Abstract
Inspired by the double-debt problem in Japan where the mortgagor has to pay the remaining loan even if their house was destroyed by a catastrophic event, we model the lender's cash flow, by an exponential functional of a renewal-reward process. We propose an insurance add-on to the loan repayments and analyse the asymptotic behavior of the distribution of the first hitting time, which represents the probability of full repayment. We show that the finite-time probability of full loan repayment converges exponentially fast to the infinite-time one. In a few concrete scenarios, we calculate the exact form of the infinite-time probability and the corresponding premiums. [ABSTRACT FROM AUTHOR]
- Published
- 2022
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