{"id":118,"date":"2020-01-29T11:04:00","date_gmt":"2020-01-29T11:04:00","guid":{"rendered":"http:\/\/www.guythomas.org.uk\/blog\/?p=118"},"modified":"2022-08-23T10:33:47","modified_gmt":"2022-08-23T10:33:47","slug":"valuation-of-no-negative-equity-guarantees-with-a-lower-reflecting-barrier","status":"publish","type":"post","link":"https:\/\/www.guythomas.org.uk\/blog\/valuation-of-no-negative-equity-guarantees-with-a-lower-reflecting-barrier\/","title":{"rendered":"Valuation of no-negative-equity guarantees with a lower reflecting barrier"},"content":{"rendered":"\n<p>This draft paper develops some of the thoughts in my earliest&nbsp;<a href=\"http:\/\/www.guythomas.org.uk\/blog\/no-negative-equity-guarantees-black-scholes-and-its-discontents\/\">blog post<\/a>&nbsp;on NNEG valuation.&nbsp;<\/p>\n\n\n\n<p><strong>ABSTRACT:<\/strong>&nbsp;If the general level of house prices falls a long way, policymakers may introduce new policies which seek to support prices. This paper considers the effect of such interventions on the valuation of no-negative-equity guarantees (NNEG) in equity release mortgages. I discuss past examples of interventions, and policymaker statements which suggest the prospect of future interventions.&nbsp; I model interventions by a reflecting barrier expressed as a fraction of the current level of house prices. Reflection at the barrier is instantaneous, so the no-arbitrage property is preserved, and hence risk-neutral valuation of NNEG is possible. The reflecting barrier can alternatively be justified as a representation of the different economic nature of the underlying housing (and particularly freehold land) assets in NNEG valuations, compared with the underlying equity assets in many other option valuations.<\/p>\n\n\n\n<p>Full text available on my&nbsp;<a href=\"http:\/\/www.guythomas.org.uk\/\">main page<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>This draft paper develops some of the thoughts in my earliest&nbsp;blog post&nbsp;on NNEG valuation.&nbsp; ABSTRACT:&nbsp;If the general level of house prices falls a long way, policymakers may introduce new policies which seek to support prices. This paper considers the effect of such interventions on the valuation of no-negative-equity guarantees (NNEG) in equity release mortgages. I &#8230; <a title=\"Valuation of no-negative-equity guarantees with a lower reflecting barrier\" class=\"read-more\" href=\"https:\/\/www.guythomas.org.uk\/blog\/valuation-of-no-negative-equity-guarantees-with-a-lower-reflecting-barrier\/\" aria-label=\"More on Valuation of no-negative-equity guarantees with a lower reflecting barrier\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6,11],"tags":[],"class_list":["post-118","post","type-post","status-publish","format-standard","hentry","category-nneg","category-option-pricing"],"_links":{"self":[{"href":"https:\/\/www.guythomas.org.uk\/blog\/wp-json\/wp\/v2\/posts\/118","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.guythomas.org.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.guythomas.org.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.guythomas.org.uk\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.guythomas.org.uk\/blog\/wp-json\/wp\/v2\/comments?post=118"}],"version-history":[{"count":2,"href":"https:\/\/www.guythomas.org.uk\/blog\/wp-json\/wp\/v2\/posts\/118\/revisions"}],"predecessor-version":[{"id":300,"href":"https:\/\/www.guythomas.org.uk\/blog\/wp-json\/wp\/v2\/posts\/118\/revisions\/300"}],"wp:attachment":[{"href":"https:\/\/www.guythomas.org.uk\/blog\/wp-json\/wp\/v2\/media?parent=118"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.guythomas.org.uk\/blog\/wp-json\/wp\/v2\/categories?post=118"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.guythomas.org.uk\/blog\/wp-json\/wp\/v2\/tags?post=118"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}