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

See all articles by Yijia Lin

Yijia Lin

University of Nebraska at Lincoln - Department of Finance

Sheen Liu

Washington State University - Vancouver

Jifeng Yu

University of Nebraska-Lincoln

Date Written: October 31, 2011

Abstract

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

Suggested Citation

Lin, Yijia and Liu, Sheen and Yu, Jifeng, Pricing Mortality Securities with Correlated Mortality Indexes (October 31, 2011). Journal of Risk and Insurance, Vol. 80, Issue 4, pp. 921-948, 2013, Available at SSRN: https://ssrn.com/abstract=1636819 or http://dx.doi.org/10.2139/ssrn.1636819

Yijia Lin (Contact Author)

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

Lincoln, NE 68588-0490
United States

Sheen Liu

Washington State University - Vancouver ( email )

14204 NE Salmon Creek Ave.
Vancouver, WA 98686
United States

Jifeng Yu

University of Nebraska-Lincoln ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

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