The pricing of mortality-linked contingent claims: An equilibrium approach
Journal
ASTIN Bulletin
Journal Volume
43
Journal Issue
2
Pages
97-121
Date Issued
2013
Author(s)
Tsai J.T.
Abstract
Abstract This study introduces an equilibrium approach to price mortality-linked securities in a discrete time economy, assuming that the mortality rate has a transformed normal distribution. This pricing method complements current studies on the valuation of mortality-linked securities, which only have discrete trading opportunities and insufficient market trading data. Like the Wang transform, the valuation relationship is still risk-neutral (preference-free) and the mortality-linked security is priced as the expected value of its terminal payoff, discounted by the risk-free rate. This study provides an example of pricing the Swiss Re mortality bond issued in 2003 and obtains an approximated closed-form solution. ? 2013 by Astin Bulletin.
Subjects
Longevity risk
mortality-linked security valuation
transform normal distribution
SDGs
Type
journal article