A Bayesian approach to pricing longevity risk based on risk-neutral predictive distributions

Atsuyuki Kogure and Yoshiyuki Kurachi

Insurance: Mathematics and Economics, 2010, vol. 46, issue 1, 162-172

Abstract: We present a Bayesian approach to pricing longevity risk under the framework of the Lee-Carter methodology. Specifically, we propose a Bayesian method for pricing the survivor bond and the related survivor swap designed by Denuit et al. (2007). Our method is based on the risk neutralization of the predictive distribution of future survival rates using the entropy maximization principle discussed by Stutzer (1996). The method is illustrated by applying it to Japanese mortality rates.

Keywords: Bayesian; approach; Pricing; longevity; risk; Maximum; entropy; principle; Risk-neutral; predictive; distribution; Japanese; mortality; rates (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:46:y:2010:i:1:p:162-172

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