In the current work we analyze two mortality-linked securities and try to price them coherently with the Solvency II framework. We consider a vanilla survivor swap and a survivor option. The mortality index underlying these derivatives is built on the survivors of a specific cohort of individuals. Although extensively discussed, it does not exist yet a satisfactory methodology for pricing these products. At the root of the problem lies the incompleteness of the market of longevity-linked securities. Innovative solutions continue to be presented. Moving from the consideration that the market price of longevity risk is intrinsic in the risk margin computed for the same risk, some authors suggest using the risk margin to price longevity risk. We follow suggestions to price vanilla survivor swap and survivor option.
On longevity risk securitization and solvency capital requirements in life annuities
MENZIETTI, MASSIMILIANO;
2012-01-01
Abstract
In the current work we analyze two mortality-linked securities and try to price them coherently with the Solvency II framework. We consider a vanilla survivor swap and a survivor option. The mortality index underlying these derivatives is built on the survivors of a specific cohort of individuals. Although extensively discussed, it does not exist yet a satisfactory methodology for pricing these products. At the root of the problem lies the incompleteness of the market of longevity-linked securities. Innovative solutions continue to be presented. Moving from the consideration that the market price of longevity risk is intrinsic in the risk margin computed for the same risk, some authors suggest using the risk margin to price longevity risk. We follow suggestions to price vanilla survivor swap and survivor option.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
