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http://dx.doi.org/10.5351/KJAS.2015.28.4.703

Longevity Bond Pricing by a Cohort-based Stochastic Mortality  

Jho, Jae Hoon (School of International Economics and Business, Yeungnam University)
Lee, Kangsoo (Korea Insurance Development Institute)
Publication Information
The Korean Journal of Applied Statistics / v.28, no.4, 2015 , pp. 703-719 More about this Journal
Abstract
We propose an extension of the Lee and Jho (2015) mean reverting the two factor mortality model by incorporating a period-specific cohort effect. We found that the consideration of cohort effect improves the mortality fit of Korea male data above age 65. Parameters are estimated by the weighted least squares method and Metropolis algorithm. We also emphasize that the cohort effect is necessary to choose the base survival index to calculate longevity bond issue price. A key contribution of the article is the proposal and development of a method to calculate the longevity bond price to hedge the longevity risk exposed to Korea National Pension Services.
Keywords
longevity bond; cohort effect; two factor mortality model; mean reverting stochastic process; weighted least squares method; Metropolis algorithm;
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Times Cited By KSCI : 1  (Citation Analysis)
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