Longevity Modelling and Pricing under a Dependent Multi-Cohort Framework

Fadoua Zeddouk and Pierre Devolder
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Fadoua Zeddouk: Institute of Statistics, Biostatistics and Actuarial Sciences, Catholic University of Louvain, Voie du Roman Pays 20, 1348 Louvain-La-Neuve, Belgium
Pierre Devolder: Institute of Statistics, Biostatistics and Actuarial Sciences, Catholic University of Louvain, Voie du Roman Pays 20, 1348 Louvain-La-Neuve, Belgium

Risks, 2020, vol. 8, issue 4, 1-23

Abstract: We propose a multi-cohort model that is able to capture the mortality correlation between different cohorts. The model is based on the Hull and White process to which we incorporate inter-generational risk factors, by modifying its stochastic part. We provide a pricing framework for a new survival forward contract under the Cost of Capital, risk-neutral and Sharpe approaches, allowing to cover the global multi-cohort longevity risk. We give numerical illustrations for Belgian cohorts, and we compute the price of the longevity derivative under the proposed methods, for different correlation levels.

Keywords: multi-cohort; longevity hedging; survival forward; Cost of Capital (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:8:y:2020:i:4:p:121-:d:445668

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