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Pricing Standardized Mortality Securitizations: A Two‐Population Model With Transitory Jump Effects
Author(s) -
Zhou Rui,
Li Johnny SiuHang,
Tan Ken Seng
Publication year - 2013
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2013.12015.x
Subject(s) - jump , population , economics , econometrics , mortality rate , population model , actuarial science , demography , physics , quantum mechanics , sociology
A bstract 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.