Pricing longevity risks under the multivariate stochastic process with tranche techniques

摘要

Longevity risk pose a major challenge for life insurers and pension funds around the world. As a new risk management tool, securitization can offer great opportunities for hedging this risk. The purpose of this paper is to improve the design of longevity bonds in an incomplete market framework. The paper develops a stochastic survival model suitable for financial pricing and risk management applications. The model captures the stochastic trends in survival improvement at different ages and includes multiple stochastic risk factors. This paper also provides a method to price longevity bonds using tranche techniques. This method can meet different risk preferences of investors. Based on this, the empirical study is conducted using data of China.