Pricing Longevity Bonds Using Affine-Jump Diffusion Models
Autor(a) principal: | |
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Data de Publicação: | 2008 |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10174/7593 |
Resumo: | Historically, actuaries have been calculating premiums and mathematical reserves using a deterministic approach, by considering a deterministic mortality intensity, which is a function of the age only, extracted from available (static) life tables and by setting a flat ("best estimate") interest rate to discount cash flows over time. Since neither the mortality intensity nor interest rates are actually deterministic, life insurance companies and pension funds are exposed to both financial and mortality (systematic and unsystematic) risks when pricing and reserving for any kind of long-term living benefits, particularly on annuities and pensions. In this paper, we assume that an appropriate description of the demographic risks requires the use of stochastic models. In particular, we assume that the random evolution of the stochastic force of mortality of an individual can be modelled by using doubly stochastic processes. The model is then embedded into the well know affine-jump framework, widely used in the term structure literature, in order to derive closed-form solutions for the survival probability. We show that stochastic mortality models provide an adequate framework for the development of longevity risk hedging tools, namely mortality-linked contracts such as longevity bonds or mortality derivatives. |
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Pricing Longevity Bonds Using Affine-Jump Diffusion Modelsstochastic mortalitylongevity bondaffine modelslife tableHistorically, actuaries have been calculating premiums and mathematical reserves using a deterministic approach, by considering a deterministic mortality intensity, which is a function of the age only, extracted from available (static) life tables and by setting a flat ("best estimate") interest rate to discount cash flows over time. Since neither the mortality intensity nor interest rates are actually deterministic, life insurance companies and pension funds are exposed to both financial and mortality (systematic and unsystematic) risks when pricing and reserving for any kind of long-term living benefits, particularly on annuities and pensions. In this paper, we assume that an appropriate description of the demographic risks requires the use of stochastic models. In particular, we assume that the random evolution of the stochastic force of mortality of an individual can be modelled by using doubly stochastic processes. The model is then embedded into the well know affine-jump framework, widely used in the term structure literature, in order to derive closed-form solutions for the survival probability. We show that stochastic mortality models provide an adequate framework for the development of longevity risk hedging tools, namely mortality-linked contracts such as longevity bonds or mortality derivatives.2nd Annual Meeting of the Portuguese Economic Journal2013-01-22T11:07:38Z2013-01-222008-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articlehttp://hdl.handle.net/10174/7593http://hdl.handle.net/10174/7593engBravo, J. M. (2008). Pricing Longevity Bonds Using Affine-Jump Diffusion Models, Proceedings of the 2nd Annual Meeting of the Portuguese Economic Journal, Évora, Portugal. Disponível em: https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=pej2008&paper_id=73https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=pej2008&paper_id=73jbravo@uevora.pt645Bravo, Jorgeinfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2024-01-03T18:47:56Zoai:dspace.uevora.pt:10174/7593Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-20T01:02:06.049136Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Pricing Longevity Bonds Using Affine-Jump Diffusion Models |
title |
Pricing Longevity Bonds Using Affine-Jump Diffusion Models |
spellingShingle |
Pricing Longevity Bonds Using Affine-Jump Diffusion Models Bravo, Jorge stochastic mortality longevity bond affine models life table |
title_short |
Pricing Longevity Bonds Using Affine-Jump Diffusion Models |
title_full |
Pricing Longevity Bonds Using Affine-Jump Diffusion Models |
title_fullStr |
Pricing Longevity Bonds Using Affine-Jump Diffusion Models |
title_full_unstemmed |
Pricing Longevity Bonds Using Affine-Jump Diffusion Models |
title_sort |
Pricing Longevity Bonds Using Affine-Jump Diffusion Models |
author |
Bravo, Jorge |
author_facet |
Bravo, Jorge |
author_role |
author |
dc.contributor.author.fl_str_mv |
Bravo, Jorge |
dc.subject.por.fl_str_mv |
stochastic mortality longevity bond affine models life table |
topic |
stochastic mortality longevity bond affine models life table |
description |
Historically, actuaries have been calculating premiums and mathematical reserves using a deterministic approach, by considering a deterministic mortality intensity, which is a function of the age only, extracted from available (static) life tables and by setting a flat ("best estimate") interest rate to discount cash flows over time. Since neither the mortality intensity nor interest rates are actually deterministic, life insurance companies and pension funds are exposed to both financial and mortality (systematic and unsystematic) risks when pricing and reserving for any kind of long-term living benefits, particularly on annuities and pensions. In this paper, we assume that an appropriate description of the demographic risks requires the use of stochastic models. In particular, we assume that the random evolution of the stochastic force of mortality of an individual can be modelled by using doubly stochastic processes. The model is then embedded into the well know affine-jump framework, widely used in the term structure literature, in order to derive closed-form solutions for the survival probability. We show that stochastic mortality models provide an adequate framework for the development of longevity risk hedging tools, namely mortality-linked contracts such as longevity bonds or mortality derivatives. |
publishDate |
2008 |
dc.date.none.fl_str_mv |
2008-01-01T00:00:00Z 2013-01-22T11:07:38Z 2013-01-22 |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10174/7593 http://hdl.handle.net/10174/7593 |
url |
http://hdl.handle.net/10174/7593 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Bravo, J. M. (2008). Pricing Longevity Bonds Using Affine-Jump Diffusion Models, Proceedings of the 2nd Annual Meeting of the Portuguese Economic Journal, Évora, Portugal. Disponível em: https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=pej2008&paper_id=73 https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=pej2008&paper_id=73 jbravo@uevora.pt 645 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.publisher.none.fl_str_mv |
2nd Annual Meeting of the Portuguese Economic Journal |
publisher.none.fl_str_mv |
2nd Annual Meeting of the Portuguese Economic Journal |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
instacron_str |
RCAAP |
institution |
RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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1799136504924078080 |