Survivor Derivatives: A Consistent Pricing Framework

Dawson, P., Dowd, K., Cairns, A.J.G. & Blake, D. (2010). Survivor Derivatives: A Consistent Pricing Framework. Journal Of Risk And Insurance, 77(3), pp. 579-596. doi: 10.1111/j.1539-6975.2010.01356.x

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Abstract

Survivorship risk is a significant factor in the provision of retirement income. Survivor derivatives are in their early stages and offer potentially significant welfare benefits to society. This article applies the approach developed by Dowd et al. (2006), Olivier and Jeffery (2004), Smith (2005), and Cairns (2007) to derive a consistent framework for pricing a wide range 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. (2009) can be used to price nonlinear survivor derivatives, 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.

Item Type: Article
Uncontrolled Keywords: 1502 Banking, Finance And Investment
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/17995

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  • Survivor Derivatives: A Consistent Pricing Framework. (deposited 11 Aug 2017 11:07) [Currently Displayed]

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