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Securitization of longevity risk – survivor swap perspective

Author

Listed:
  • Xiaopeng Zou
  • Zihan Ye
  • Qiuzi Zhang

Abstract

Purpose - The purpose of this paper is to present a clear path to securitize the longevity risk with two distinct swaps in order to inspire a new Chinese life market. Design/methodology/approach - Studies on longevity risk securitization consist of three aspects, respectively, instrument design, pricing methodology and mortality projection. The swaps designed are referenced, respectively, to vanilla and complex survivor swaps (Dowdet al., 2006; Lin and Cox, 2005). Methods applied are RHH model and Gompertz law for mortality projection, as well as two-factor Wang transformation for pricing. Findings - This paper figures out the market price of risk in Chinese annuity market, checks for the sensitivity of the price to parameters and tests the hedging effects by Monte Carlo simulation. Originality/value - Based on the theoretical and numerical results, this paper suggests an effective way to possibly witness the birth of New Life Market in China.

Suggested Citation

  • Xiaopeng Zou & Zihan Ye & Qiuzi Zhang, 2016. "Securitization of longevity risk – survivor swap perspective," China Finance Review International, Emerald Group Publishing Limited, vol. 6(4), pages 322-341, November.
    • Handle: RePEc:eme:cfripp:cfri-06-2015-0092
    DOI: 10.1108/CFRI-06-2015-0092
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    Citations

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    Cited by:

    1. Leung, Melvern & Fung, Man Chung & O’Hare, Colin, 2018. "A comparative study of pricing approaches for longevity instruments," Insurance: Mathematics and Economics, Elsevier, vol. 82(C), pages 95-116.

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