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Economic Pricing of Mortality-Linked Securities: A Tâtonnement Approach

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  • Rui Zhou
  • Johnny Siu-Hang Li
  • Ken Seng Tan

Abstract

type="main" xml:lang="en"> 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.

Suggested Citation

  • Rui Zhou & Johnny Siu-Hang Li & Ken Seng Tan, 2015. "Economic Pricing of Mortality-Linked Securities: A Tâtonnement Approach," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 82(1), pages 65-96, March.
    • Handle: RePEc:bla:jrinsu:v:82:y:2015:i:1:p:65-96
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    Cited by:

    1. Leung, Melvern & Fung, Man Chung & O’Hare, Colin, 2018. "A comparative study of pricing approaches for longevity instruments," Insurance: Mathematics and Economics, Elsevier, vol. 82(C), pages 95-116.
    2. Boonen, Tim J., 2017. "Risk Redistribution Games With Dual Utilities," ASTIN Bulletin, Cambridge University Press, vol. 47(1), pages 303-329, January.
    3. Zhou, Rui & Li, Johnny Siu-Hang & Tan, Ken Seng, 2015. "Modeling longevity risk transfers as Nash bargaining problems: Methodology and insights," Economic Modelling, Elsevier, vol. 51(C), pages 460-472.
    4. Bahl, Raj Kumari & Sabanis, Sotirios, 2021. "Model-independent price bounds for Catastrophic Mortality Bonds," Insurance: Mathematics and Economics, Elsevier, vol. 96(C), pages 276-291.
    5. Min Zheng, 2015. "Heterogeneous Expectations and Speculative Behavior in Insurance-Linked Securities," Discrete Dynamics in Nature and Society, Hindawi, vol. 2015, pages 1-12, March.
    6. Chen, An & Li, Hong & Schultze, Mark, 2022. "Collective longevity swap: A novel longevity risk transfer solution and its economic pricing," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 227-249.

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