The Longevity Swap Pricing Research Based On Chinese Mortality

Along with the social development as well as the progress of times, the living standards of China's residents are gradually raising. Due to the improvement of medical and sanitation facilities, the Chinese people's mortality rates are getting little by little lower, in other words, Chinese people's residual lifetime is getting longer which led to the deepening of China's population aging process. With the speeding up of Chinese aging progress, there is an evident exposure of Chinese longevity risk. On the 2016's National People's Congress and the Chinese Political Consultative Conference, the topic of endowment became an important proposition of common concern by the conference members and publics. There is an urgent need to find an effective risk dispersion method to cope with the increasing Chinese longevity risk that caused by aging progress.Given the actual research conclusion, tradition risk management methods cannot effectively disperse the longevity risk exposure. In the ongoing study of longevity risk management, we found that dialectically use the resources of the entire capital market and securitize the longevity risk exposure can achieve the effective longevity risk hedge. In this paper we draw the risk securitization methods that widely used in the world. We analyze the stochastic mortality forecast model which is the core of the longevity risk's quantify, and discuss how to manage the commercial insurance longevity risk by longevity swap. In the theoretical component, we give a summary of the stochastic mortality forecast model and give out the test criteria, and then sort and compare the longevity risk securitization products. In the empirical component, we use the Chinese people's mortality data to perform numerical simulation on the improve Lee-Carter model, and obtain the reasonable future mortality rate forecast outcomes. Based on the robust forecast outcomes, this paper give out the operation mode and model structure, as well as the pricing result of longevity swap.The main contributions of this paper are:First, we complete the improvement of the Lee-Carter model using Chinese mortality rate, increase the effectiveness of the model forecast result. In addition, the reasonable forecast results are used in the model and pricing of longevity swap product, which provide theoretical support and practice power to the management and disperse of China's longevity risk.