Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5076558 | Insurance: Mathematics and Economics | 2014 | 10 Pages |
Abstract
This study investigates reasonable price bounds for mortality-linked securities when the issuer has only a partial hedging ability. The price bounds are established by minimizing the difference between the benchmark price and the replicating portfolio cost subject to the gain-loss ratio of excess payoff of the mortality-linked securities. In contrast to the previous studies, the assumptions of no-arbitrage pricing and utility-based pricing are not fully employed in this study because of the incompleteness of the insurance securitization market. Instead, a framework including three insurance basis assets is constructed to search for the price bounds of mortality-linked securities and use the Swiss Re mortality catastrophe bond, issued in 2003, as a numerical example. The proposed price bounds are valuable for setting bid-asked spreads and coupon premiums, and establishing trading strategies in the raising mortality securitization markets.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Yu-Lieh Huang, Jeffrey Tzuhao Tsai, Sharon S. Yang, Hung-Wen Cheng,