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Securitization of Longevity Risk: Pricing Survivor Bonds With Wang Transform in the Lee‐Carter Framework

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  • Michel Denuit
  • Pierre Devolder
  • Anne‐Cécile Goderniaux

Abstract

Longevity risk is a major issue for insurers and pension funds, especially in the selling of annuity products. In that respect, securitization of this risk could offer great opportunities for hedging. This article proposes to design survivor bonds which could be issued directly by insurers. In order to guaranty some transparency in the product, the survivor bond is based on a public mortality index. The classical Lee‐Carter model for mortality forecasting is used to price a risky coupon survivor bond based on this index.

Suggested Citation

  • Michel Denuit & Pierre Devolder & Anne‐Cécile Goderniaux, 2007. "Securitization of Longevity Risk: Pricing Survivor Bonds With Wang Transform in the Lee‐Carter Framework," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(1), pages 87-113, March.
    • Handle: RePEc:bla:jrinsu:v:74:y:2007:i:1:p:87-113
    DOI: 10.1111/j.1539-6975.2007.00203.x
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    References listed on IDEAS

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    1. Andrew Ang & Angela Maddaloni, 2005. "Do Demographic Changes Affect Risk Premiums? Evidence from International Data," The Journal of Business, University of Chicago Press, vol. 78(1), pages 341-380, January.
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