 Modeling Mortality With Jumps: Applications to Mortality SecuritizationHua Chen and Samuel H. Cox Journal of Risk & Insurance, 2009, vol. 76, issue 3, 727-751 Abstract: In this article, we incorporate a jump process into the original Lee–Carter model, and use it to forecast mortality rates and analyze mortality securitization. We explore alternative models with transitory versus permanent jump effects and find that modeling mortality via transitory jump effects may be more appropriate in mortality securitization. We use the Swiss Re mortality bond in 2003 as an example to show how to apply our model together with the distortion measure approach to value mortality‐linked securities. Pricing the Swiss Re mortality bond is challenging because the mortality index is correlated across countries and over time. Cox, Lin, and Wang (2006) employ the normalized multivariate exponential tilting to take into account correlations across countries, but the problem of correlation over time remains unsolved. We show in this article how to account for the correlations of the mortality index over time by simulating the mortality index and changing the measure on paths. Date: 2009 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:76:y:2009:i:3:p:727-751 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Risk & Insurance is currently edited by Joan T. Schmit More articles in Journal of Risk & Insurance from The American Risk and Insurance Association Contact information at EDIRC. |
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