Centro de Documentacion de Fundación MAPFRE - Yes we can (price derivatives on survivor indices)

Notas: Sumario: We propose a simulation approach to value derivatives when the underlying dynamics are estimated using the survivor indices directly. Our results show that survivor forward and swap premiums increase with maturity and with the market price of risk. Our results also confirm that taking the optionality into consideration is important from a pricing perspective, for both U.S. women and men. We compare our results to what is obtained using an alternative modeling approach in which a LeeCarter model is used to indirectly model the survivor index. Compared to this method, our estimated premiums and prices are higher for all longevity products. Moreover, comparing American-style with European-style options we find that, although the early exercise option has value when using survivor indices directly, the relative value of the early exercise option is significantly less than when the LeeCarter model is used to indirectly model the survivor index. It follows that the assumed mortality dynamics have important implications for the term structure of forward and swap premiums and for the effect that changes in the market price of risk has on them.Registros relacionados: En: Risk management & insurance review. - Malden, MA : The American Risk and Insurance Association by Blackwell Publishing, 1999- = ISSN 1098-1616. - 01/03/2017 Tomo 20 Número 1 - 2017 , p. 37-62Materia / lugar / evento: Mortalidad Cálculo actuarial Outras classificações: 7

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