If we can simulate it, we can insure it: An application to longevity risk management
AbstractThis paper proposes a unified framework for measuring and managing longevity risk. Specifically, we develop a flexible framework for valuing survivor derivatives like forwards, and swaps, as well as options both of European and American style. Our framework is essentially independent of the assumed underlying dynamics and the choice of method for risk neutralization and relies only on the ability to simulate from the risk neutral process. We provide an application to derivatives on the survivor index when the underlying dynamics are from a Lee–Carter model. Our results show that taking the optionality into consideration is important from a pricing perspective.
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Bibliographic InfoArticle provided by Elsevier in its journal Insurance: Mathematics and Economics.
Volume (Year): 52 (2013)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/505554
Least squares Monte Carlo; Longevity risk; Reinsurance; Simulation;
Other versions of this item:
- M. Martin Boyer & Lars Peter Stentoft, 2012. "If we can simulate it, we can insure it: An application to longevity risk management," CIRANO Working Papers 2012s-08, CIRANO.
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
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