Rui Zhou is an Assistant Professor at Warren Centre for Actuarial Studies and Research, University of Manitoba, Winnipeg, Manitoba, Canada. Johnny Siu-Hang Li holds the Fairfax Chair in Risk Management in the Department of Statistics and Actuarial Science at the University of Waterloo, Canada. Ken Seng Tan is a University Research Chair Professor in the Department of Statistics and Actuarial Science, University of Waterloo, Canada. The authors can be contacted via e-mail: email@example.com, firstname.lastname@example.org, and email@example.com. The authors acknowledge the financial support from the Natural Science and Engineering Research Council of Canada. The authors would also like to thank Professor Andrew Cairns and other participants at the Seventh International Longevity Risk and Capital Markets Solutions Conference for their stimulating discussions on an earlier version of this article.
Pricing Standardized Mortality Securitizations: A Two-Population Model With Transitory Jump Effects
Version of Record online: 29 AUG 2013
© The Journal of Risk and Insurance, 2013
Journal of Risk and Insurance
Volume 80, Issue 3, pages 733–774, September 2013
How to Cite
Zhou, R., Li, J. S.-H. and Tan, K. S. (2013), Pricing Standardized Mortality Securitizations: A Two-Population Model With Transitory Jump Effects. Journal of Risk and Insurance, 80: 733–774. doi: 10.1111/j.1539-6975.2013.12015.x
- Issue online: 29 AUG 2013
- Version of Record online: 29 AUG 2013
- Natural Science and Engineering Research Council of Canada
Mortality dynamics are subject to jumps that are due to events such as wars and pandemics. Such jumps can have a significant impact on prices of securities that are designed for hedging catastrophic mortality risk, and therefore should be taken into account in modeling. Although several single-population mortality models with jump effects have been developed, they are not adequate for modeling trades in which the hedger's population is different from the population associated with the security being traded. In this article, we first develop a two-population mortality model with transitory jump effects, and then we use the proposed model and an economic-pricing framework to examine how mortality jumps may affect the supply and demand of mortality-linked securities.