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Securitization of catastrophe mortality risks

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  • Lin, Yijia
  • Cox, Samuel H.

Abstract

Securitization with payments linked to explicit mortality events provides a new investment opportunity to investors and financial institutions. Moreover, mortality-linked securities provide an alternative risk management tool for insurers. As a step toward understanding these securities, we develop an asset pricing model for mortality-based securities in an incomplete market framework with jump processes. Our model nicely explains opposite market outcomes of two existing pure mortality securities.

Suggested Citation

  • Lin, Yijia & Cox, Samuel H., 2008. "Securitization of catastrophe mortality risks," Insurance: Mathematics and Economics, Elsevier, vol. 42(2), pages 628-637, April.
  • Handle: RePEc:eee:insuma:v:42:y:2008:i:2:p:628-637
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Chen, Hua & MacMinn, Richard & Sun, Tao, 2015. "Multi-population mortality models: A factor copula approach," Insurance: Mathematics and Economics, Elsevier, vol. 63(C), pages 135-146.
    2. Bauer, Daniel & Börger, Matthias & Ruß, Jochen, 2010. "On the pricing of longevity-linked securities," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 139-149, February.
    3. Shen, Yang & Siu, Tak Kuen, 2013. "Longevity bond pricing under stochastic interest rate and mortality with regime-switching," Insurance: Mathematics and Economics, Elsevier, vol. 52(1), pages 114-123.
    4. Cox, Samuel H. & Lin, Yijia & Pedersen, Hal, 2010. "Mortality risk modeling: Applications to insurance securitization," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 242-253, February.
    5. repec:bla:jrinsu:v:84:y:2017:i:s1:p:367-392 is not listed on IDEAS
    6. Lin, Yijia & MacMinn, Richard D. & Tian, Ruilin, 2015. "De-risking defined benefit plans," Insurance: Mathematics and Economics, Elsevier, vol. 63(C), pages 52-65.
    7. repec:bla:jrinsu:v:84:y:2017:i:s1:p:345-365 is not listed on IDEAS
    8. Huang, Rachel J. & Miao, Jerry C.Y. & Tzeng, Larry Y., 2013. "Does mortality improvement increase equity risk premiums? A risk perception perspective," Journal of Empirical Finance, Elsevier, vol. 22(C), pages 67-77.
    9. Yijia Lin & Sheen Liu & Jifeng Yu, 2013. "Pricing Mortality Securities With Correlated Mortality Indexes," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(4), pages 921-948, December.
    10. Yang, Sharon S. & Wang, Chou-Wen, 2013. "Pricing and securitization of multi-country longevity risk with mortality dependence," Insurance: Mathematics and Economics, Elsevier, vol. 52(2), pages 157-169.
    11. Huang, Yu-Lieh & Tsai, Jeffrey Tzuhao & Yang, Sharon S. & Cheng, Hung-Wen, 2014. "Price bounds of mortality-linked security in incomplete insurance market," Insurance: Mathematics and Economics, Elsevier, vol. 55(C), pages 30-39.
    12. repec:bla:jrinsu:v:84:y:2017:i:s1:p:393-415 is not listed on IDEAS
    13. Chou-Wen Wang & Hong-Chih Huang & I-Chien Liu, 2013. "Mortality Modeling With Non-Gaussian Innovations and Applications to the Valuation of Longevity Swaps," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(3), pages 775-798, September.
    14. Chen, Hua & Cox, Samuel H. & Wang, Shaun S., 2010. "Is the Home Equity Conversion Mortgage in the United States sustainable? Evidence from pricing mortgage insurance premiums and non-recourse provisions using the conditional Esscher transform," Insurance: Mathematics and Economics, Elsevier, vol. 46(2), pages 371-384, April.
    15. Liu, Yanxin & Li, Johnny Siu-Hang, 2015. "The age pattern of transitory mortality jumps and its impact on the pricing of catastrophic mortality bonds," Insurance: Mathematics and Economics, Elsevier, vol. 64(C), pages 135-150.
    16. Chen, Hua & Cummins, J. David, 2010. "Longevity bond premiums: The extreme value approach and risk cubic pricing," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 150-161, February.
    17. Hua Chen & Samuel H. Cox, 2009. "Modeling Mortality With Jumps: Applications to Mortality Securitization," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(3), pages 727-751.
    18. Li, Johnny Siu-Hang, 2010. "Pricing longevity risk with the parametric bootstrap: A maximum entropy approach," Insurance: Mathematics and Economics, Elsevier, vol. 47(2), pages 176-186, October.
    19. Samuel H. Cox & Yijia Lin & Ruilin Tian & Jifeng Yu, 2013. "Managing Capital Market and Longevity Risks in a Defined Benefit Pension Plan," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(3), pages 585-620, September.
    20. Samuel H. Cox & Yijia Lin & Ruilin Tian & Luis F. Zuluaga, 2013. "Mortality Portfolio Risk Management," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(4), pages 853-890, December.
    21. repec:bla:jrinsu:v:84:y:2017:i:s1:p:299-317 is not listed on IDEAS
    22. Andreas Milidonis, 2012. "Cypriot Mortality and Pension Benefits," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 6(2), pages 59-66, December.

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