Journal article
Economic Pricing of Mortality-Linked Securities: A Tâtonnement Approach
R Zhou, JSH Li, KS Tan
Journal of Risk and Insurance | WILEY-BLACKWELL | Published : 2015
Abstract
In previous research on pricing mortality-linked securities, the no-arbitrage approach is often used. However, this approach, which takes market prices as given, is difficult to implement in today's embryonic market where there are few traded securities. In this article, we tackle the pricing problem from a different angle by considering methods that are more related to fundamental economic concepts. Specifically, we treat the pricing work as aWalrasian tâtonnement process, in which prices are determined through a gradual calibration of supply and demand. We illustrate the proposed pricing framework with a hypothetical mortality-linked security and mortality data from the U.S. population.
Grants
Funding Acknowledgements
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: rui.zhou@ad.umanitoba.ca, shli@uwaterloo.ca, and kstan@uwaterloo.ca. The authors acknowledge the financial support from the Natural Science and Engineering Research Council of Canada.