Valuing Mortgage Insurance Contracts in Emerging Market Economies

The Journal of Real Estate Finance and Economics

Raša Karapandža, Ashok Bardhan & Branko Urošević

We develop a new option-based method for the valuation of mortgage insurance contracts in closed form in an economy where agents are risk neutral. While the proposed valuation method is general and can be used in any market, it may be particularly useful in emerging market economies where other existing methods may be either inappropriate or are too difficult to implement because of the lack of relevant data. As an application, we price a typical Serbian government-backed mortgage insurance contract.