Pricing Mortality Securities with Correlated Mortality Indexes
Journal of Risk and Insurance, Vol. 80, Issue 4, pp. 921-948, 2013
35 Pages Posted: 11 Jul 2010 Last revised: 19 Feb 2015
Date Written: October 31, 2011
This paper proposes a stochastic model, which captures mortality correlations across countries and common mortality shocks, for analyzing catastrophe mortality contingent claims. To estimate our model, we apply particle filtering, a general technique that has wide applications in non-Gaussian and multivariate jump-diffusion models and models with nonanalytic observation equations. In addition, we illustrate how to price mortality securities with normalized multivariate exponential titling based on the estimated mortality correlations and jump parameters. Our results show the significance of modeling mortality correlations and transient jumps in mortality security pricing.
Keywords: Mortality Correlation, Mortality Modeling, Particle Filter, Mortality Security Pricing
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