On the robustness of longevity risk pricing. (English) Zbl 1231.91426

Summary: For longevity bond pricing, the most popular methods contain the risk-neutral method, the Wang transform and the Sharpe ratio rule. This paper studies robustness of these three methods and investigates connections and differences among them through theoretic analysis and numerical illustrations. We adopt the dynamic mortality models with jumps to capture the permanent effects caused by unexpected factors and allow the correlation between mortality and interest rate be nonzero. The analysis is based on four typical mortality models, including the mean-reverting models and the non mean-reverting ones. Our work may provide a guidance for participants on choice of pricing methods.


91G20 Derivative securities (option pricing, hedging, etc.)
91B30 Risk theory, insurance (MSC2010)
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