文章基本信息

标题：A Two-Factor Model for Stochastic Mortality with Parameter Uncertainty: Theory and Calibration
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作者：Andrew J.G. Cairns ; David Blake ; Kevin Dowd 等
期刊名称：Discussion Paper / The Pensions Institute
印刷版ISSN：1367-580X
出版年度：2006
卷号：2006
页码：687-718
出版社：Pensions Institute
摘要：In this article, we consider the evolution of the post-age-60 mortality curve in the United Kingdom and its impact on the pricing of the risk associated with aggregate mortality improvements over time: so-called longevity risk. We introduce a two-factor stochastic model for the development of this curve through time. The first factor affects mortality-rate dynamics at all ages in the same way, whereas the second factor affects mortality-rate dynamics at higher ages much more than at lower ages. The article then examines the pricing of longevity bonds with different terms to maturity referenced to different cohorts. We find that longevity risk over relatively short time horizons is very low, but at horizons in excess of ten years it begins to pick up very rapidly. A key component of the article is the proposal and development of a method for calculating the market risk-adjusted price of a longevity bond. The proposed adjustment includes not just an allowance for the underlying stochastic mortality, but also makes an allowance for parameter risk. We utilize the pricing information contained in the November 2004 European Investment Bank longevity bond to make inferences about the likely market prices of the risks in the model. Based on these, we investigate how future issues might be priced to ensure an absence of arbitrage between bonds with different characteristics.