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Longevity risk and survivor derivative pricing

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journal contribution
posted on 12.05.2022, 04:18 by P Dawson, Hai LinHai Lin, Y Liu
Purpose – Longevity risk, that is, the uncertainty of the demographic survival rate, is an important risk for insurance companies and pension funds, which have large, and long-term, exposures to survivorship. The purpose of this paper is to propose a new model to describe this demographic survival risk. Design/methodology/approach – The model proposed in this paper satisfies all the desired properties of a survival rate and has an explicit distribution for both single years and accumulative years. Findings – The results show that it is important to consider the expected shift and risk premium of life table uncertainty and the stochastic behaviour of survival rates when pricing the survivor derivatives. Originality/value – This model can be applied to the rapidly growing market for survivor derivatives.

History

Preferred citation

Dawson, P., Lin, H. & Liu, Y. (2013). Longevity risk and survivor derivative pricing. The Journal of Risk Finance, 14(2), 140-158. https://doi.org/10.1108/15265941311301189

Journal title

The Journal of Risk Finance

Volume

14

Issue

2

Publication date

01/01/2013

Pagination

140-158

Publisher

Emerald

Publication status

Published

Contribution type

Article

ISSN

1526-5943

eISSN

0965-7967

Language

en

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