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Longevity Modelling and Pricing under a Dependent Multi-Cohort Framework

Author

Listed:
  • Fadoua Zeddouk

    (Institute of Statistics, Biostatistics and Actuarial Sciences, Catholic University of Louvain, Voie du Roman Pays 20, 1348 Louvain-La-Neuve, Belgium)

  • Pierre Devolder

    (Institute of Statistics, Biostatistics and Actuarial Sciences, Catholic University of Louvain, Voie du Roman Pays 20, 1348 Louvain-La-Neuve, Belgium)

Abstract

We propose a multi-cohort model that is able to capture the mortality correlation between different cohorts. The model is based on the Hull and White process to which we incorporate inter-generational risk factors, by modifying its stochastic part. We provide a pricing framework for a new survival forward contract under the Cost of Capital, risk-neutral and Sharpe approaches, allowing to cover the global multi-cohort longevity risk. We give numerical illustrations for Belgian cohorts, and we compute the price of the longevity derivative under the proposed methods, for different correlation levels.

Suggested Citation

  • Fadoua Zeddouk & Pierre Devolder, 2020. "Longevity Modelling and Pricing under a Dependent Multi-Cohort Framework," Risks, MDPI, vol. 8(4), pages 1-23, November.
    • Handle: RePEc:gam:jrisks:v:8:y:2020:i:4:p:121-:d:445668
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    References listed on IDEAS

    as
    1. Fadoua Zeddouk & Pierre Devolder, 2019. "Pricing of Longevity Derivatives and Cost of Capital," Risks, MDPI, vol. 7(2), pages 1-29, April.
    2. Zeddouk, Fadoua & Devolder, Pierre, 2020. "Mean reversion in stochastic mortality: why and how?," LIDAM Reprints ISBA 2020018, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    3. Zeddouk, Fadoua & Devolder, Pierre, 2019. "Pricing of Longevity Derivatives and Cost of Capital," LIDAM Reprints ISBA 2019033, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
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