Abstract
In the current work we analyze two longevity-linked securities and try to price them coherently in the Solvency II framework. We consider a vanilla survivor swap and a survivor option. The mortality index underlying these derivatives is built on the survivors of a specific cohort of individuals. Although extensively discussed, it does not exist yet a satisfactory methodology for pricing these products. At the root of the problem lies the incompleteness of the market of longevity-linked securities. Innovative solutions continue to be presented. Moving from the consideration that the market price of longevity risk is intrinsic in the risk margin computed for the same risk, some authors suggest using the risk margin to price longevity risk. We follow their suggestion to price the vanilla survivor swap and the survivor option.
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Levantesi, S., Menzietti, M., Torri, T. (2012). On longevity risk securitization and solvency capital requirements in life annuities. In: Perna, C., Sibillo, M. (eds) Mathematical and Statistical Methods for Actuarial Sciences and Finance. Springer, Milano. https://doi.org/10.1007/978-88-470-2342-0_30
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DOI: https://doi.org/10.1007/978-88-470-2342-0_30
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