Pricing q-forward contracts: an evaluation of estimation window and pricing method under different mortality models

Pauline M. Barrieu and Luitgard A.M. Veraart

Scandinavian Actuarial Journal, 2016, vol. 2016, issue 2, 146-166

Abstract: The aim of this paper is to study the impact of various sources of uncertainty on the pricing of a special longevity–based instrument: a q$ q $-forward contract. At the expiry of a q$ q $-forward contract, the realized mortality rate for a given population is exchanged in return for a fixed (mortality) rate that is agreed at the initiation of the contract. Pricing a q$ q $-forward involves determining this fixed rate. In our study, we disentangle three main sources of uncertainty and consider their impact on pricing: model choice for the underlying mortality rate, time-window used for estimation and the pricing method itself.

Date: 2016
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DOI: 10.1080/03461238.2014.916228

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