Securitization of longevity risk – survivor swap perspective

Xiaopeng Zou, Zihan Ye and Qiuzi Zhang

China Finance Review International, 2016, vol. 6, issue 4, 322-341

Abstract: Purpose - The purpose of this paper is to present a clear path to securitize the longevity risk with two distinct swaps in order to inspire a new Chinese life market. Design/methodology/approach - Studies on longevity risk securitization consist of three aspects, respectively, instrument design, pricing methodology and mortality projection. The swaps designed are referenced, respectively, to vanilla and complex survivor swaps (Dowdet al., 2006; Lin and Cox, 2005). Methods applied are RHH model and Gompertz law for mortality projection, as well as two-factor Wang transformation for pricing. Findings - This paper figures out the market price of risk in Chinese annuity market, checks for the sensitivity of the price to parameters and tests the hedging effects by Monte Carlo simulation. Originality/value - Based on the theoretical and numerical results, this paper suggests an effective way to possibly witness the birth of New Life Market in China.

Keywords: Gompertz law; Longevity risk securitization; Mortality projection; Survivor swap; Two-factors Wang transformation (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eme:cfripp:cfri-06-2015-0092

DOI: 10.1108/CFRI-06-2015-0092

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