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

See all articles by Samuel H. Cox

Samuel H. Cox

University of Manitoba - Asper School of Business

Yijia Lin

University of Nebraska at Lincoln - Department of Finance

Hal Petersen

affiliation not provided to SSRN

Date Written: July 18, 2008

Abstract

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

Suggested Citation

Cox, Samuel H. and Lin, Yijia and Petersen, Hal, Mortality Risk Modeling: Applications to Insurance Securitization (July 18, 2008). Insurance: Mathematics and Economics, Vol. 46, No. 1, pp. 242-253, 2010, Available at SSRN: https://ssrn.com/abstract=1070421

Samuel H. Cox

University of Manitoba - Asper School of Business ( email )

181 Freedman Crescent
Winnipeg, Manitoba R3T 5V4
Canada

Yijia Lin (Contact Author)

University of Nebraska at Lincoln - Department of Finance ( email )

Lincoln, NE 68588-0490
United States

Hal Petersen

affiliation not provided to SSRN ( email )

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