Reverse mortgages through artificial intelligence: new opportunities for the actuaries

Lorenzo, Emilia Di; Piscopo, Gabriella; Sibillo, Marilena; Tizzano, Roberto

doi:10.1007/s10203-020-00274-y

Cited by 13 publications

(4 citation statements)

References 23 publications

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“…There are different approaches to modelling interest rate risk in reverse mortgages. One approach is to assume a fixed interest rate, which has been used by several authors, such as Chen et al (2010), Yang (2011), Kogure et al (2014), Shao et al (2015), Sharma et al (2022), de la Fuente et al (2020), and Di Lorenzo et al (2021. However, alternative models can be employed to capture the dynamics of interest rates.…”

Section: Literature Reviewmentioning

confidence: 99%

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Valuation of Reverse Mortgages in the Spanish Market for Foreign Residents

Atance,

Debón,

De La Fuente

2023

Technological and Economic Development of Economy

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The continuous growth in life expectancy, besides to the difficult economic and financial situation of the public pension system in Spain, makes reverse mortgages an attractive solution for providing additional income to retirees. However, despite being almost 20 years old, the Spanish market remains immature. Consequently, providers face significant risks, due to factors such as interest rates, housing prices, and longevity. Numerous tourists visit Spain, and many retire there, obtaining legal residence. Therefore, lenders could be interested in marketing reverse mortgages to foreign residents. Nevertheless, the longevity risk faced by these lenders may differ depending on the nationality of the borrower, and profits and losses could vary. Consequently, we propose a methodology for comparing the pricing of reverse mortgages in Spain by considering differences in longevity risk. Specifically, we calculate the amount offered by three types of reverse mortgages to customers of different nationalities, genders, and ages with contracts made in Spain. Our conclusions are pertinent to Spanish lenders since the results indicate that, in general, a Spanish lender would assume a slightly larger risk when lending reverse mortgages to borrowers of the selected nationalities, regardless of other considerations, such as legal issues, which are not addressed in this article.

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Section: Literature Reviewmentioning

confidence: 99%

“…However, if the market dynamic is expected to shift substantially, another approach may be needed, such as a jump-diffusion model (Lee et al, 2012(Lee et al, , 2018. Even more sophisticated statistical techniques, such as neural networks, have been used to project the real estate market (di Lorenzo et al 2021).…”

Section: Literature Reviewmentioning

confidence: 99%

Valuation of Reverse Mortgages in the Spanish Market for Foreign Residents

Atance,

Debón,

De La Fuente

2023

Technological and Economic Development of Economy

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“…Despite the fact that these contracts have now been in use in the United States for roughly 30 years, where they have led to the creation of a discreetly developed market, 1 they are not popular throughout Europe (see Reference 2) with the exception of the United Kingdom—where they are commonly referred to as equity release mortgages . This is due to both socio‐cultural factors and a general UE delay in issuing a comprehensive normative framework for RMs including tax incentives.…”

Section: Introductionmentioning

confidence: 99%

Reverse mortgage and risk profile awareness: Proposals for securitization

Lorenzo

Piscopo

Sibillo

et al. 2021

Appl Stoch Models Bus & Ind

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Reverse mortgages (RMs) are acquiring a growing centrality to meet the needs of a progressive aging population and to support the fragility of traditional pension systems. With an RM, an elderly individual gets a lump sum or a series of recurring payments whose amounts depend upon the expected liquidation value of his property and his age; he continues living in it until he dies, when the asset is sold and the proceeds are used to pay back the loan. The risk of these contracts, due to volatility of interest rates, house prices, and mortality rates, requires careful management strategies. This article analyzes the risk profile of the contract and suggests a securitization procedure where the lender averts the risks of the contract by engaging into an insurance contract through a special purpose vehicle that will issue ad-hoc bonds, whose underlying is determined by the lender's gain/loss on the contract.

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“…In the last few years, with the diffusion of the application of artificial intelligence in various fields and in the context of real estate Zurada et al (2011), many authors have used machine learning algorit hms to gain a better fitting of the models. House price predictions have been produced through machine learning (Baldominos et al 2018;Winson 2018) and deep learning methods, such as artificial neural networks (Nghiep et al 2001;Selim et al 2009;Yacim et al 2016;Yacim et al 2018;Di Lorenzo et al 2020b), support vector machine (Gu et al 2011;Wang et al 2014) and adaptive boosting Park and Bae (2015). Other contributions deepen the expert systems based on fuzzy logic (Sarip et al 2016;Del Giudice et al 2017a;Guan et al 2008).…”

Section: Introductionmentioning

confidence: 99%

The Importance of Economic Variables on London Real Estate Market: A Random Forest Approach

Levantesi

Piscopo

2020

Risks

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This paper follows the recent literature on real estate price prediction and proposes to take advantage of machine learning techniques to better explain which variables are more important in describing the real estate market evolution. We apply the random forest algorithm on London real estate data and analyze the local variables that influence the interaction between housing demand, supply and price. The variables choice is based on an urban point of view, where the main force driving the market is the interaction between local factors like population growth, net migration, new buildings and net supply.

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Reverse mortgages through artificial intelligence: new opportunities for the actuaries

Cited by 13 publications

References 23 publications

Valuation of Reverse Mortgages in the Spanish Market for Foreign Residents

Valuation of Reverse Mortgages in the Spanish Market for Foreign Residents

Reverse mortgage and risk profile awareness: Proposals for securitization

The Importance of Economic Variables on London Real Estate Market: A Random Forest Approach

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