Department of Economics and Business Economics

Yes We Can (Price Derivatives on Survivor Indices)

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

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Yes We Can (Price Derivatives on Survivor Indices). / Boyer, M. Martin; Stentoft, Lars.

In: Risk Management and Insurance Review, Vol. 20, No. 1, 01.03.2017, p. 37-62.

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

Harvard

Boyer, MM & Stentoft, L 2017, 'Yes We Can (Price Derivatives on Survivor Indices)', Risk Management and Insurance Review, vol. 20, no. 1, pp. 37-62. https://doi.org/10.1111/rmir.12073

APA

Boyer, M. M., & Stentoft, L. (2017). Yes We Can (Price Derivatives on Survivor Indices). Risk Management and Insurance Review, 20(1), 37-62. https://doi.org/10.1111/rmir.12073

CBE

Boyer MM, Stentoft L. 2017. Yes We Can (Price Derivatives on Survivor Indices). Risk Management and Insurance Review. 20(1):37-62. https://doi.org/10.1111/rmir.12073

MLA

Boyer, M. Martin and Lars Stentoft. "Yes We Can (Price Derivatives on Survivor Indices)". Risk Management and Insurance Review. 2017, 20(1). 37-62. https://doi.org/10.1111/rmir.12073

Vancouver

Boyer MM, Stentoft L. Yes We Can (Price Derivatives on Survivor Indices). Risk Management and Insurance Review. 2017 Mar 1;20(1):37-62. https://doi.org/10.1111/rmir.12073

Author

Boyer, M. Martin ; Stentoft, Lars. / Yes We Can (Price Derivatives on Survivor Indices). In: Risk Management and Insurance Review. 2017 ; Vol. 20, No. 1. pp. 37-62.

Bibtex

@article{c28b99201d75428195cddcd65a711c73,
title = "Yes We Can (Price Derivatives on Survivor Indices)",
abstract = "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 Lee–Carter 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 Lee–Carter 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.",
author = "Boyer, {M. Martin} and Lars Stentoft",
year = "2017",
month = mar,
day = "1",
doi = "10.1111/rmir.12073",
language = "English",
volume = "20",
pages = "37--62",
journal = "Risk Management and Insurance Review",
issn = "1098-1616",
publisher = "Wiley-Blackwell Publishing, Inc.",
number = "1",

}

RIS

TY - JOUR

T1 - Yes We Can (Price Derivatives on Survivor Indices)

AU - Boyer, M. Martin

AU - Stentoft, Lars

PY - 2017/3/1

Y1 - 2017/3/1

N2 - 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 Lee–Carter 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 Lee–Carter 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.

AB - 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 Lee–Carter 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 Lee–Carter 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.

U2 - 10.1111/rmir.12073

DO - 10.1111/rmir.12073

M3 - Journal article

AN - SCOPUS:85015915366

VL - 20

SP - 37

EP - 62

JO - Risk Management and Insurance Review

JF - Risk Management and Insurance Review

SN - 1098-1616

IS - 1

ER -