Abstract
Facing increasingly severe longevity problems, traditional longevity risk management methods are no longer the final answer. Longevity risk securitization provides a good hedging method, which transfers the longevity risks to a wider capital market and realizes the cross-market transfer of risks. The pricing process of longevity derivatives depends on the underlying risk factors (stochastic processes of mortality and interest rate). We adopt an affine-jump-diffusion process to model the dynamics of mortality and estimate the model parameters with the actual mortality data in China. The measure implied by the annuity market price is chosen as the risk-neutral pricing measure. We use the Chinese annuity market price to calculate the concrete form of the measure transformation and use the risk-neutral pricing measure thereby to price the longevity bond designed by Denuit et al. (2007).
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