Pricing Longevity Bonds With Lee-Carter Model And Single Factor Wang Transform

With the improvement of living standards and the improvement of medical conditions in China,the life expectancy of our country has been prolonged,and the aging phenomenon of the aging population has become more and more obvious.The longevity caused by this has brought unprecedented challenges to the annuity business of pension insurance institutions.Longevity risk refers to the risk that the actual age of the general population in the future is higher than the expected age.The longevity risk is a systemic risk that cannot be dispersed by the law of large numbers.It is difficult for annuity insurance companies,pension funds and government social security funds to manage it effectively.These institutions are thus facing the risk of huge future deficits.Through the risk securitization technology,the longevity risk will be transferred to the capital market,which will effectively resolve the longevity risk and enrich the investment products in the financial market.By designing longevity bonds and giving the pricing model of longevity bonds,this paper provides new ideas for the management of longevity risks of pension insurance institutions,which not only can promote the development of insurance practice,but also improve the research on the theory of longevity bond pricing models.There is strong practical value and theoretical significance.This paper studies the pricing of longevity bonds mainly from three aspects:mortality prediction model,survival index construction and pricing method selection.Firstly,the classic Lee-Carter model is selected as the predictive model of mortality.The survival index is constructed based on the mortality prediction model.The pricing model based on the single factor Wang transform is constructed,and the analytical solution of the longevity bond price is derived.The measurement method of market risk price and choice of discount rate is analyzed in detail.Secondly,a case study is carried out.It introduces the source of the original mortality data and fill,transform and smooth the original data.It uses the least squares method to estimate the parameters of the Lee-Carter model,and use the ARIMA model to predict the time series factors.It combines the above results to predict mortality.It analyzes the longevity risk situation in China by comparing the old and new life table data.The market risk price is solved through market annuity products.By comparing the survival index with the market risk price,predicted survival index and static survival index,we observed the prediction effect and the risk adjustment effect.It determined the discount factor based on the yield of government bonds with different maturities in China.The triggering level of longevity bonds is set based on the research results of other scholars.Based on the above data,the calculation of longevity bond prices and parameter sensitivity analysis are carried out.Finally,based on the analysis of the longevity bond pricing example,the author puts forward corresponding suggestions for several important factors such as mortality prediction,mortality index construction and incomplete market risk pricing in longevity bond pricing.In summary,this paper uses the Lee-Carter mortality prediction model and the single factor Wang transform method to propose the pricing model of China's longevity bonds.Longevity bonds provide new ideas for the management of longevity risks of pension insurance institutions,which is conducive to solving insufficient solvency of pension insurance institutions,thereby improving the safety of the operation of China's pension insurance institutions.