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On the robustness of longevity risk pricing

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  • Chen, Bingzheng
  • Zhang, Lihong
  • Zhao, Lin

Abstract

For longevity bond pricing, the most popular methods contain the risk-neutral method, the Wang transform and the Sharpe ratio rule. This paper studies robustness of these three methods and investigates connections and differences among them through theoretic analysis and numerical illustrations. We adopt the dynamic mortality models with jumps to capture the permanent effects caused by unexpected factors and allow the correlation between mortality and interest rate be nonzero. The analysis is based on four typical mortality models, including the mean-reverting models and the non mean-reverting ones. Our work may provide a guidance for participants on choice of pricing methods.

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Bibliographic Info

Article provided by Elsevier in its journal Insurance: Mathematics and Economics.

Volume (Year): 47 (2010)
Issue (Month): 3 (December)
Pages: 358-373

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Handle: RePEc:eee:insuma:v:47:y:2010:i:3:p:358-373

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Web page: http://www.elsevier.com/locate/inca/505554

Related research

Keywords: Longevity risk Risk-neutral method Wang transform Sharpe ratio rule Robustness;

References

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Cited by:
  1. Shen, Yang & Siu, Tak Kuen, 2013. "Longevity bond pricing under stochastic interest rate and mortality with regime-switching," Insurance: Mathematics and Economics, Elsevier, Elsevier, vol. 52(1), pages 114-123.

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