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Pricing q-forward contracts: an evaluation of estimation window and pricing method under different mortality models

Author

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  • Barrieu, Pauline
  • Veraart, Luitgard A. M.

Abstract

The aim of this paper is to study the impact of various sources of uncertainty on the pricing of a special longevity–based instrument: a q-forward contract. At the expiry of a q-forward contract, the realized mortality rate for a given population is exchanged in return for a fixed (mortality) rate that is agreed at the initiation of the contract. Pricing a q-forward involves determining this fixed rate. In our study, we disentangle three main sources of uncertainty and consider their impact on pricing: model choice for the underlying mortality rate, time-window used for estimation and the pricing method itself.

Suggested Citation

  • Barrieu, Pauline & Veraart, Luitgard A. M., 2016. "Pricing q-forward contracts: an evaluation of estimation window and pricing method under different mortality models," LSE Research Online Documents on Economics 58742, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:58742
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    File URL: http://eprints.lse.ac.uk/58742/
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    Citations

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    Cited by:

    1. Blake, David & Cairns, Andrew J.G., 2021. "Longevity risk and capital markets: The 2019-20 update," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 395-439.
    2. Kallestrup-Lamb, Malene & Søgaard Laursen, Nicolai, 2024. "Longevity hedge effectiveness using socioeconomic indices," Insurance: Mathematics and Economics, Elsevier, vol. 114(C), pages 242-251.
    3. Blake, David & El Karoui, Nicole & Loisel, Stéphane & MacMinn, Richard, 2018. "Longevity risk and capital markets: The 2015–16 update," Insurance: Mathematics and Economics, Elsevier, vol. 78(C), pages 157-173.

    More about this item

    Keywords

    longevity risk; q-forward; model uncertainty; estimation window; pricing method;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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