A Pricing Mechanism Research For Inverse Survivor Bonds Based On The Dynamic Model Of Mortality

In recent years,with the improvement of medical standards and people's living standards,people's average life expectancy has been significantly improved.Every coin has two sides,longevity being no exception.On the one hand,longer life expectancy is an obvious benefit for humans,on the other hand,a new kind of risk named longevity risk comes along with the improvement of life expectancy.For longevity risk,there has emerged a variety of management for longevity risk at home and abroad,like the natural hedge of annuities and life insurance products,longevity risk reinsurance as well as longevity risk securitization.Because of the support of the capital market,longevity risk securitization is better able to hedge longevity risk and has become a hot topic in longevity risk management.Specifically,longevity risk securitization products are now mainly including longevity bonds,longevity swaps,longevity options and other longevity longevity futures.Through experience and advanced research results from foreign scholars,this paper will make a detailed analysis of the pricing model and mechanism for one of the longevity bonds—inverse survivor bond.In addition,with the use of China's population mortality data,a simulative pricing will be made by using of the model before.Since the price of the products of mortality risk securitization is linked to the mortality rates of future specific populations,the first step in pricing is to predict future mortality.This article will use the classic dynamic mortality model Lee-Carter model to forecast the mortality of 65-year-old population in our country.After Wang transformation,the predicted mortality rates will be converted to the mortality rates containing market risks.Through draw lessons from foreign research experience of longevity bonds,the triggered inverse survivor bonds model will be introduced and then the pricing mechanism will be discussed in detail.with the China mortality data,we will make numerical calculation.In addition,with the calculated results,we will find characteristics of each component of inverse survivor bond.In order to further understand the pricing mechanism of inverse survior bond with different tranches,this article will make a case study by introducing the foreign research results.At last,based on the above analysis and combined with foreign advanced management experience,we will put forward the corresponding feasibility Suggestions for the management of longevity risk in our country from the pointview of inverse survivor bonds.