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Home Equity Insurance

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Author Info
Shiller, Robert J
Weiss, Allan N

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Abstract

Home equity insurance policies--policies insuring homeowners against declines in the prices of their homes--would bear some resemblance both to ordinary insurance and to financial hedging vehicles. A menu of choices for the design of such policies is presented here, and conceptual issues are discussed. Choices include pass-through futures and options, in which the insurance company in effect serves as a retailer to homeowners of short positions in real estate futures markets or of put options on real estate indices. Another choice is a life-event-triggered insurance policy, in which the homeowner pays regular fixed insurance premia and is entitled to a claim if both a sufficient decline in the real estate price index and a specified life event (such as a move beyond a certain geographical distance) occur. Pricing of the premia to cover loss experience is derived, and tables of break-even policy premia are shown, based on estimated models of Los Angeles housing prices from 1971 to 1994. Copyright 1999 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Journal of Real Estate Finance & Economics.

Volume (Year): 19 (1999)
Issue (Month): 1 (July)
Pages: 21-47
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Handle: RePEc:kap:jrefec:v:19:y:1999:i:1:p:21-47

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Web page: http://www.springerlink.com/link.asp?id=102945

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. McDonald, Robert & Siegel, Daniel, 1984. " Option Pricing When the Underlying Asset Earns a Below-Equilibrium Rate of Return: A Note," Journal of Finance, American Finance Association, vol. 39(1), pages 261-65, March. [Downloadable!] (restricted)
  2. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March. [Downloadable!] (restricted)
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  3. O'Brien, Thomas J & Selby, Michael J P, 1986. "Option Pricing Theory and Asset Expectations: A Review and Discussion in Tribute to James Boness," The Financial Review, Eastern Finance Association, vol. 21(4), pages 399-418, November.
  4. Karl E. Case & Robert J. Shiller & Allan N. Weiss, 1991. "Index-Based Futures and Options Markets in Real Estate," Cowles Foundation Discussion Papers 1006, Cowles Foundation, Yale University. [Downloadable!]
  5. Takatoshi Ito & Keiko Nosse Hirono, 1994. "Efficiency of the Tokyo Housing Market," NBER Working Papers 4382, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June. [Downloadable!] (restricted)
  7. Constantinides, George M, 1978. "Market Risk Adjustment in Project Valuation," Journal of Finance, American Finance Association, vol. 33(2), pages 603-16, May. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Arthur Grimes & Suzi Kerr & Andrew Aitken, 2004. "Bi-Directions Impacts of Economic, Social and Environmental Changes and the New Zealand Housing Market," Working Papers 04_09, Motu Economic and Public Policy Research. [Downloadable!]
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  2. Joao Cocco & John Campbell, 2004. "Household Risk Management and Optimal Mortgage Choice," Econometric Society 2004 North American Winter Meetings 646, Econometric Society. [Downloadable!]
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  3. George J.Mailath & Andrew Postlewaite & Larry Samuelson, 2003. "Sunk Investments Lead to Unpredictable Prices (Second Version)," PIER Working Paper Archive 04-007, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 30 Jan 2004. [Downloadable!]
  4. Karl E. Case & Robert J. Shiller & Allan N. Weiss, 1995. "Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate," NBER Working Papers 5078, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Robert J. Shiller, 1997. "Expanding the Scope of Individual Risk Management: Moral Hazard and Other Behavioral Considerations," Cowles Foundation Discussion Papers 1145, Cowles Foundation, Yale University. [Downloadable!]
  6. Christian A.L. Hilber, 2003. "Neighborhood externality risk and the homeownership status of properties," Proceedings, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  7. George Mailath & Andrew Postlewaite & Larry Samuelson, 2003. "Sunk Investments Lead to Unpredictable Prices," PIER Working Paper Archive 03-014, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
    Other versions:
  8. repec:att:wimass:1920311 is not listed on IDEAS
  9. Markus Haavio & Heikki Kauppi, 2009. "House Price Fluctuations and Residential Sorting," Discussion Papers 48, Aboa Centre for Economics. [Downloadable!]
  10. Juerg Syz & Paolo Vanini & Marco Salvi, 2008. "Property Derivatives and Index-Linked Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 36(1), pages 23-35, January. [Downloadable!] (restricted)
  11. Sewin Chan, 1998. "Spatial Lock-in: Do Falling House Prices Constrain Residential Mobility?," Departmental Working Papers 199816, Rutgers University, Department of Economics. [Downloadable!]
  12. Olivia S. Mitchell & John Piggott, 2004. "Unlocking Housing Equity in Japan," NBER Working Papers 10340, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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