Pricing Mortality Securities with Correlated Mortality Indexes

28 Pages Posted: 18 Dec 2013

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: December 2013

Abstract

This article 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.

Suggested Citation

Lin, Yijia and Liu, Sheen and Yu, Jifeng, Pricing Mortality Securities with Correlated Mortality Indexes (December 2013). Journal of Risk and Insurance, Vol. 80, Issue 4, pp. 921-948, 2013. Available at SSRN: https://ssrn.com/abstract=2369097 or http://dx.doi.org/10.1111/j.1539-6975.2012.01481.x

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 )

United States

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