Market Price of Longevity Risk for a Multi‐Cohort Mortality Model With Application to Longevity Bond Option Pricing

Yajing Xu, Michael Sherris and Jonathan Ziveyi

Journal of Risk & Insurance, 2020, vol. 87, issue 3, 571-595

Abstract: We introduce a multi‐cohort continuous time affine mortality model and, along with an affine arbitrage‐free term structure model, determine implied market prices of longevity risk in the BlackRock CoRI Retirement Indexes. These indexes provide a daily level of estimated cost of lifetime retirement income for 20 cohorts in the United States. Individuals can invest in BlackRock funds that track the indexes that are quoted on the NYSE. We use our model to derive closed‐form expressions for prices of European options on longevity zero‐coupon bonds and show the impact of stochastic mortality on long‐term longevity bond option prices.

Date: 2020
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https://doi.org/10.1111/jori.12273

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:87:y:2020:i:3:p:571-595

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