Document details

Pricing longevity swaps : an empirical investigation using the risk-neutral simulation method

Author(s): Santos, Sofia Alexandra Vieira dos

Date: 2018

Persistent ID:

Origin: Repositório Institucional da UNL

Subject(s): Longevity risk; Longevity swap; Risk-neutral simulation; Lee-Carter possion model


This paper develops and applies an empirical framework to managing and measuring the longevity risk using derivative instruments, with the aim of suppressing the normal difficulties present in pricing the premium of this type of instruments. More precisely is developed a longevity swap using United States and Japan mortality data, creating a flexible and versatile approach for pricing swap instruments through the risk neutral simulation method. This method is calculated by forecasting survival probabilities, which were estimated and simulated by predicting the mortality parameters applying log bilinear Lee-Carter model across 60 years of both countries data (1954-2014). Using this approach and both countries empirical data is offered a comparative analysis across genders, different type of ages and risk levels. This way it’s possible to expand and test the previous literature contributions and flaws, proving that derivatives are a way to manage the longevity risk in large quantities, which should be considered by insurance companies.

Document Type Master thesis
Language English
Advisor(s) Bravo, Jorge Miguel Ventura
Contributor(s) Santos, Sofia Alexandra Vieira dos
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