The Effects of Macroeconomic Factors on Pricing Mortgage Insurance Contracts

Chia Chien Chang, Chou Wen Wang*, Chih Yuan Yang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

12 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)867-895
Number of pages29
JournalJournal of Risk and Insurance
Volume79
Issue number3
DOIs
Publication statusPublished - 2012 Sep
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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