A Bayesian approach to pricing longevity risk based on risk-neutral predictive distributions
AbstractWe 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 etÂ 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.
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Bibliographic InfoArticle provided by Elsevier in its journal Insurance: Mathematics and Economics.
Volume (Year): 46 (2010)
Issue (Month): 1 (February)
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Web page: http://www.elsevier.com/locate/inca/505554
Bayesian approach Pricing longevity risk Maximum entropy principle Risk-neutral predictive distribution Japanese mortality rates;
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