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Forward Mortality Rates in Discrete Time I: Calibration and Securities Pricing

Hunt, A. and Blake, D. ORCID: 0000-0002-2453-2090 (2015). Forward Mortality Rates in Discrete Time I: Calibration and Securities Pricing (PI-1511). Pensions Institute.

Abstract

Many users of mortality models are interested in using them to place values on longevity-linked liabilities and sec urities. Modern reg ulatory regimes require that the values of liabilities and reserves are consistent with market prices (if available), whilst the gradual emergencies of a traded market in longevity risk needs methods for pricing new types of longevity-linked securities quickly and efficiently. In this study, we develop a new forward mortality framework to enable the efficient pricing of longevity-linked liabilities and securities in a market-consistent fashion. This approach starts from the historicall data of the observed mortality rates, i.e., the force of mortality. Building on the dynamics of age/period/cohort models of the observed force of mortality, we develop models of forward mortality rates and then use a change of measure to incorporate whatever market information is available. The resulting forward mortality rates are then used to value a number of different longevity-linked securities, such as q-forwards, s-forwards and longevity swaps.

Publication Type: Monograph (Discussion Paper)
Publisher Keywords: Mortality modelling, age/period/c ohort models, forward mortality rates, Essc her transform, longevity-linked securities
Subjects: G Geography. Anthropology. Recreation > GF Human ecology. Anthropogeography
H Social Sciences > HF Commerce
Departments: Business School > Finance
Date available in CRO: 29 Apr 2021 13:13
Date deposited: 29 April 2021
Date of first online publication: 2015
URI: https://openaccess.city.ac.uk/id/eprint/26072
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