Completing the Survivor Derivatives Market: A General Pricing Framework
Pensions Institute Discussion Paper No. PI-0712
34 Pages Posted: 10 Feb 2009
Date Written: February 10, 2009
Survivorship is a risk of considerable importance to developed economies. Survivor derivatives are in their early stages and manage a risk which is arguably more serious than that managed by credit derivatives. This paper takes the approach developed by Dowd et al. , Olivier and Jeffery , Smith  and Cairns  for pricing survivor swaps and shows its application to the pricing of other forms of linear survivor derivatives, such as forwards, basis swaps, forward swaps and futures. It then shows how a recent option pricing model set out by Dawson et al.  can be used to price survivor options such as survivor swaptions, caps, floors and combined option products. It concludes by considering applications of these products to a pension fund that wishes to hedge its survivorship risks.
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