249,143 research outputs found

    Can housing wealth alleviate poverty among Britain's older population?

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    This paper investigates the scope for housing wealth to alleviate poverty among Britain’s older population by modelling the potential effect of equity-release schemes on the net incomes of older homeowners using data from the 1993-94 and 1994-95 Family Expenditure Surveys. We find that, for the older population in general, the potential impact of equity release on poverty is limited by the positive association between homeownership and income in later life. The scope for equity release to enhance incomes is restricted mainly to the oldest age-groups where life expectancy is short. However, it is at these oldest ages that incomes are lowest and although we estimate that equity release cannot provide much benefit to those in the greatest poverty, the additions to income that equity release could bring to some of the oldest homeowners are not insignificant.

    Discounting the Discounted Projection Approach

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    UK equity release actuaries are using a flawed approach to value the no-negative equity guarantees in their equity release mortgages. The approach they use, the Discounted Projection approach, incorrectly uses projected future house prices as the underlying prices in their put option pricing equations. The correct approach uses forward house prices. The Discounted Projection approach entails significant under-valuations of no negative equity guarantees and over-valuations of equity release mortgages and can produce valuations that violate rational pricing principles. The Discounted Projection approach is also inconsistent with both actuarial and accounting standards. Our results have significant ramifications for equity release industry practice and prudential regulation

    The UK prudential regulation authority’s valuation principles for equity release

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    In recent years the UK Prudential Regulation Authority has been involved in an ongoing discussion with equity release firms over the principles to be used in the valuation of equity release mortgages. The UK regulator proposed a set of such principles in its Supervisory Statement SS 3/17. These principles mark a major step forward in equity release valuation methodology. They are based on elementary pricing economics, their validity is easily established and they are easy to apply. They can be used to provide a cross-check on any proposed set of valuations and so test the reliability of the underlying valuation model or its calibration.Keywords. Actuarial science; Black ’76 model; Equity release mortgage; No negative equity guarantee; Prudential regulation.JEL. G20; G30

    Home equity release for long term care financing: an improved market structure and pricing approach

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    Home equity release products have been promoted as a potential solution to residential long term care costs for the elderly. Unexpectedly low utilization of home equity release loans has prompted efforts to better model and price the No-Negative-Equity-Guarantee (NNEG) built into the contracts, but loan rates are still widely perceived by homeowners as being unattractive.. We propose the introduction of a new adjustable rate loan based on a regional house price index, with the NNEG being borne by a specially created intermediary. The proposed approach allows us to directly address and separately price the basis risk between individual house price returns and index returns. Additionally, it offers the opportunity to create securities based on residential real estate that would be attractive to a wider class of investors. The alternative risk-sharing mechanism creates a more transparent and simple pricing structure for the loans. We then use house sales data to demonstrate the approach. We find in our sample that it would be possible to make higher loans than seen in previous literature using standard roll-up contracts. In the most favourable scenario for our simulations, the maximum loan is 89 per cent of the appraised home value if the loan is advanced as a lump sum and 95 per cent if the loan is advanced in instalments

    Equity and Excellence in Education--Compatible Concepts or Hostile Abstractions?

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    Since 1983, with the publication of five well-known national reports calling for reform in education,[2] the later release of other reports by prestigious groups (such as the Carnegie Task Force on Teaching as a Profession and the Holmes Group), and the enactment of approximately 700 state statutes focused on school reform,[3] the push for excellence has overshadowed earlier commitments to equity in schools. As Orlich writes, In at least one instance, implementing the proposals of these two groups [Carnegie and Holmes] would have the same undesirable effect: reducing the number of minority teachers from few to virtually none. [4] This movement for excellence has had a narrowing effect on the level of social consciousness concerning sex and race equity in schools and in society. Any movement which restricts the growth of equity should be examined critically; for it, both as a topic of study and as a fact in practice, is a necessary component of an excellent and complete preparation of teachers in a pluralistic society. By providing programs that both preach and practice equity principles, today\u27s teacher educators assist the next generation of teachers to develop a contextual understanding of the field of teaching and a heightened social consciousness of their role in education

    Federal, State, and Local Governments: Evaluating their Separate Roles in US Growth

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    We use US county level data (3,058 observations) from 1970 to 1998 to explore the relationship between economic growth and the extent of government employment at three levels: federal, state and local. We find that increases in federal, state and local government employments are all negatively associated with economic growth. We find no evidence that government is more efficient at lower levels. While we cannot separate out the productive and redistributive services of government, we document that the county-level income distribution became slightly more unequal from 1970 to 1998. For those who justify government activities in terms of equity concerns – perhaps even trading off economic growth for equity – the burden falls on them to show that the income distribution would have widened more in the absence of government activities. We conclude that a release of government-employed labor inputs to the private sector would be growth-enhancing.Economic Growth, Federal Government, State Government, Local Government, County-Level Data, Metro and Non-Metro Counties, Income Distribution, Equity

    Partisan impacts on the economy: evidence from prediction markets and close elections

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    Analyses of the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections. We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during election day. Analyzing high frequency financial fluctuations following the release of flawed exit poll data on election day 2004, and then during the vote count we find that markets anticipated higher equity prices, interest rates and oil prices, and a stronger dollar under a George W. Bush presidency than under John Kerry. A similar Republican–Democrat differential was also observed for the 2000 Bush–Gore contest. Prediction market based analyses of all presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican president raises equity valuations by 2–3 percent, and that since Ronald Reagan, Republican presidents have tended to raise bond yields

    How Profitable are Equity Release Mortgages?

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    We obtain valuations of UK Equity Release Mortgages under the ‘market consistent’ approach consistent with conventional option pricing and the ‘discounted projection’ approach used by the industry. Projections of the expected profitability of these products have significant commercial implications

    Parole Release of an Equity of Redemption

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    Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections

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    Analyses of the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections. We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during Election Day. Analyzing high frequency financial fluctuations following the release of flawed exit poll data on Election Day 2004, and then during the vote count, we find that markets anticipated higher equity prices, interest rates and oil prices and a stronger dollar under a Bush presidency than under Kerry. A similar Republican-Democrat differential was also observed for the 2000 Bush-Gore contest. Prediction market based analyses of all Presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican President raises equity valuations by 2 3 percent, and that since Reagan, Republican Presidents have tended to raise bond yields.
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