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SECURITIZATION OF LONGEVITY RISK USING PERCENTILE TRANCHING
- Authors
- Kim, Changki; Choi, Yangho
- Issue Date
- 12월-2011
- Publisher
- WILEY-BLACKWELL
- Keywords
- Securitization; Risk Transfer; Inverse survivor bonds; Longevity Risks; Percentile Tranching
- Citation
- JOURNAL OF RISK AND INSURANCE, v.78, no.4, pp.885 - 905
- Indexed
- SSCI
SCOPUS
- Journal Title
- JOURNAL OF RISK AND INSURANCE
- Volume
- 78
- Number
- 4
- Start Page
- 885
- End Page
- 905
- ISSN
- 0022-4367
- Abstract
- Securitizations that transfer risk to the financial markets are a potential solution to longevity risk in the annuity business. The classical Lee-Carter model is applied to generate the future stochastic survival distribution. A method to design inverse survivor bonds using percentile tranches and to calculate the security prices is presented. The percentile tranche method is a simple and practical way for the issuer to design and price the security. This method can serve to identify the risk-yield relationship, which can provide investors with clear insight regarding the appropriate choice of tranches.
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