Pricing Mortality Securities with Correlated Mortality Indexes

Authors

Yijia Lin, University of Nebraska–LincolnFollow
Sheen Liu, Washington State UniversityFollow
Jifeng Yu, University of Nebraska–LincolnFollow

Date of this Version

2012

Citation

Published in The Journal of Risk and Insurance 2012 (28 pp); doi: 10.1111/j.1539-6975.2012.01481.x

Comments

Copyright © 2012 The Journal of Risk and Insurance. Used by permission.

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.