A Bayesian approach to pricing longevity risk based on risk-neutral predictive distributions

Atsuyuki Kogure, Yoshiyuki Kurachi

Research output: Contribution to journalArticle

28 Citations (Scopus)

Abstract

We present a Bayesian approach to pricing longevity risk under the framework of the Lee-Carter methodology. Specifically, we propose a Bayesian method for pricing the survivor bond and the related survivor swap designed by Denuit et al. (2007). Our method is based on the risk neutralization of the predictive distribution of future survival rates using the entropy maximization principle discussed by Stutzer (1996). The method is illustrated by applying it to Japanese mortality rates.

Original languageEnglish
Pages (from-to)162-172
Number of pages11
JournalInsurance: Mathematics and Economics
Volume46
Issue number1
DOIs
Publication statusPublished - 2010 Feb

Fingerprint

Predictive Distribution
Bayesian Approach
Pricing
Entropy Maximization
Mortality Rate
Swap
Bayesian Methods
Methodology
Survivors
Predictive distribution
Bayesian approach
Longevity risk
Framework
Survival rate
Bayesian methods
Swaps
Entropy
Mortality rate

Keywords

  • Bayesian approach
  • Japanese mortality rates
  • Maximum entropy principle
  • Pricing longevity risk
  • Risk-neutral predictive distribution

ASJC Scopus subject areas

  • Statistics, Probability and Uncertainty
  • Economics and Econometrics
  • Statistics and Probability

Cite this

A Bayesian approach to pricing longevity risk based on risk-neutral predictive distributions. / Kogure, Atsuyuki; Kurachi, Yoshiyuki.

In: Insurance: Mathematics and Economics, Vol. 46, No. 1, 02.2010, p. 162-172.

Research output: Contribution to journalArticle

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