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Reverse Mortgages for Managing Longevity Risk in Korea

Author

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  • Yang, Jaehwan
  • Yuh, Yoonkyung

Abstract

This study examines how longevity risk can be alleviated by using reverse mortgage loan system in Korea, Joo-Taek-Yeon-Keum (JTYK). We compare the expected utility value of JTYK borrowers during retirement with that of non-JTYK borrowers, and identify characteristics of groups earning the greatest benefits from the JTYK. The results imply that it is especially beneficial for homeowners aged 67 and older, and its benefit increases if the bequest value is included. We also calculate the Moneyʼs Worth Ratio (MWR) of the JTYK, and show that MWRs increase as the opt-in age increases if the bequest is considered as financial gain.

Suggested Citation

  • Yang, Jaehwan & Yuh, Yoonkyung, 2019. "Reverse Mortgages for Managing Longevity Risk in Korea," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 60(1), pages 21-40, June.
  • Handle: RePEc:hit:hitjec:v:60:y:2019:i:1:p:21-40
    DOI: 10.15057/30360
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    More about this item

    Keywords

    reverse mortgage; longevity risk; expected utility function; optimization; bequest;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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