Non-recourse mortgage and implied option pricing by black-scholes model

Abstract

"Non-recourse mortgage loan is a loan product in which the collection of creditors is limited to the house subject to the mortgage. Non-recourse loan makes it possible for the debtor to defend his or her wealth from the indemnity right of the creditor. The object of this study is to estimate the value of the non-recourse right and convert it into the corresponding interest rate. For this purpose, we applied the option pricing model because the non-recourse right is equal to the put option with the loan balance the exercise price. Results found that the interest rate premium due to the non-recourse right had a positive relationship with loan-to-value ratio (LTV), volatility, the interest rate of recourse mortgages, maturity, and dividend yield ratio, but a negative relationship with the risk-free interest rate. These results were consistent with the prediction based on the option theory.