A new option for mortality–interest rates

Tzuling Lin and Cary Chi‐Liang Tsai

Journal of Futures Markets, 2023, vol. 43, issue 2, 273-293

Abstract: We propose a new type of mortality–interest option related to a new random variable, the force of mortality–interest denoted as μ * ${\mu }^{* }$, the addition of the force of mortality and the force of interest. We assume μ* ${\mu }^{* }$ moves approximately linearly, design the new mortality–interest option, and then derive closed‐form formulas for its expected values. We show that using the new mortality–interest options, an annuity provider and a life insurer can, respectively, hedge the longevity and mortality risks with interest rate risk; a financial intermediary selling the new options can benefit from natural hedges resulted from two‐side businesses with the annuity provider and life insurer.

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/fut.22390

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:43:y:2023:i:2:p:273-293

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().