Mortality Risk Modeling: Applications to Insurance Securitization
Insurance: Mathematics and Economics, Vol. 46, No. 1, pp. 242-253, 2010
35 Pages Posted: 21 Jul 2008 Last revised: 26 Aug 2011
Date Written: July 18, 2008
This paper proposes a stochastic mortality model featuring both permanent longevity jump and temporary mortality jump processes. A trend reduction component describes unexpected mortality improvement over an extended period of time. The model also captures the uneven effect of mortality events on different ages and the correlations among them. The model will be useful in analyzing future mortality dependent cash flows of life insurance portfolios, annuity portfolios, and portfolios of mortality derivatives. We show how to apply the model to analyze and price a longevity security.
Keywords: Mortality Risk, Longevity Risk, Modeling, Securitization
JEL Classification: G22, G23, I12, J11, H55
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