The real cost of the Government Mortgage Indemnity Scheme : an application of the option pricing theory

 

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dc.contributor.advisor High, Hugh en_ZA
dc.contributor.author Seslija, Ljubisa en_ZA
dc.date.accessioned 2016-03-04T16:43:58Z
dc.date.available 2016-03-04T16:43:58Z
dc.date.issued 1995 en_ZA
dc.identifier.citation Seslija, L. 1995. The real cost of the Government Mortgage Indemnity Scheme : an application of the option pricing theory. University of Cape Town. en_ZA
dc.identifier.uri http://hdl.handle.net/11427/17474
dc.description Bibliography: pages 65-66. en_ZA
dc.description.abstract The legacy of apartheid in the social and economic fabric of South Africa is pervasive. More than two million households, with an average of five persons per household, are living in shacks or in hostels. Thus, the South African Government of National Unity as its most urgent priority has endeavoured to find solutions to this disastrous housing crisis. Thus, the Government proposed - amongst other measures - to establish a Government-supported Mortgage Indemnity Scheme. However, such loan-guarantees are not cost free. Moreover, since they are contingent liabilities, the contingency of which may be realised and thus impose a cost to the Government, it is important that such cost be known or estimated. Using the modified Merton's model of an analytic derivation of the cost of loan guarantees, this paper evaluates the potential cost that may be imposed to the Government. While the paper recognised that there may be scope for some kind of the Government loan guarantees, the overriding theme is that the Government should charge a fee for its loan guarantee. Moreover, it has also been illustrated that the main beneficiaries of the MIS will be: (a) households at the upper end of the low-cost housing market, and (b) private financial institutions which will be indemnified by the terms of MIS. Accordingly, the mere fact that the main beneficiaries will be those two categories of end-users and not these at the lower segment of the low-cost housing market suggests that the MIS may not attain its principal purpose - that of serving these in the lowest income group. Thus, there is no reason why the Government should bear the likely cost of the MIS. In contrast, the Government should charge a fee for its guarantee. en_ZA
dc.language.iso eng en_ZA
dc.subject.other Economics en_ZA
dc.title The real cost of the Government Mortgage Indemnity Scheme : an application of the option pricing theory en_ZA
dc.type Master Thesis
uct.type.publication Research en_ZA
uct.type.resource Thesis en_ZA
dc.publisher.institution University of Cape Town
dc.publisher.faculty Faculty of Commerce en_ZA
dc.publisher.department School of Economics en_ZA
dc.type.qualificationlevel Masters
dc.type.qualificationname MCom en_ZA
uct.type.filetype Text
uct.type.filetype Image
dc.identifier.apacitation Seslija, L. (1995). <i>The real cost of the Government Mortgage Indemnity Scheme : an application of the option pricing theory</i>. (Thesis). University of Cape Town ,Faculty of Commerce ,School of Economics. Retrieved from http://hdl.handle.net/11427/17474 en_ZA
dc.identifier.chicagocitation Seslija, Ljubisa. <i>"The real cost of the Government Mortgage Indemnity Scheme : an application of the option pricing theory."</i> Thesis., University of Cape Town ,Faculty of Commerce ,School of Economics, 1995. http://hdl.handle.net/11427/17474 en_ZA
dc.identifier.vancouvercitation Seslija L. The real cost of the Government Mortgage Indemnity Scheme : an application of the option pricing theory. [Thesis]. University of Cape Town ,Faculty of Commerce ,School of Economics, 1995 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/17474 en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Seslija, Ljubisa AB - The legacy of apartheid in the social and economic fabric of South Africa is pervasive. More than two million households, with an average of five persons per household, are living in shacks or in hostels. Thus, the South African Government of National Unity as its most urgent priority has endeavoured to find solutions to this disastrous housing crisis. Thus, the Government proposed - amongst other measures - to establish a Government-supported Mortgage Indemnity Scheme. However, such loan-guarantees are not cost free. Moreover, since they are contingent liabilities, the contingency of which may be realised and thus impose a cost to the Government, it is important that such cost be known or estimated. Using the modified Merton's model of an analytic derivation of the cost of loan guarantees, this paper evaluates the potential cost that may be imposed to the Government. While the paper recognised that there may be scope for some kind of the Government loan guarantees, the overriding theme is that the Government should charge a fee for its loan guarantee. Moreover, it has also been illustrated that the main beneficiaries of the MIS will be: (a) households at the upper end of the low-cost housing market, and (b) private financial institutions which will be indemnified by the terms of MIS. Accordingly, the mere fact that the main beneficiaries will be those two categories of end-users and not these at the lower segment of the low-cost housing market suggests that the MIS may not attain its principal purpose - that of serving these in the lowest income group. Thus, there is no reason why the Government should bear the likely cost of the MIS. In contrast, the Government should charge a fee for its guarantee. DA - 1995 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 1995 T1 - The real cost of the Government Mortgage Indemnity Scheme : an application of the option pricing theory TI - The real cost of the Government Mortgage Indemnity Scheme : an application of the option pricing theory UR - http://hdl.handle.net/11427/17474 ER - en_ZA


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