THE VALUATION OF LONGEVITY BOND AS A HEDGING INSTRUMENT FOR LIFE INSURANCE AND LIFE ANNUITIES WITH STOCHASTIC SHOCK OF MORTALITY (BERNOULLI PROCESS AND TRUNCATED NORMAL DISTRIBUTION)
Longevity bond is a financial instrument equipped with unique coupon payment structure, which enables the bond to give some hedging effects for life insurance and life annuities. The coupon payment structure is floating and the amount depends on the mortality rate during the bond contract. Hence...
Saved in:
| Main Author: | |
|---|---|
| Format: | Final Project |
| Language: | Indonesia |
| Subjects: | |
| Online Access: | https://digilib.itb.ac.id/gdl/view/34014 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | Longevity bond is a financial instrument equipped with unique coupon
payment structure, which enables the bond to give some hedging effects for
life insurance and life annuities. The coupon payment structure is floating
and the amount depends on the mortality rate during the bond contract.
Hence, in this final project, the method used to determine the value of
longevity bond involves the arrival of pro-mortality and anti-mortality factors
(shock of mortality). The combination of Bernoulli process and truncated
normal distribution is used to model the arrival of shock of mortality which
is stochastic indeed. The valuation of longevity bond is carried out under
the risk-adjusted mortality distribution as well, that is the distribution which
has accommodated the probability of shock of mortality arrival. The Wang
transform is one of some methods that can be used to undertake an adjustment
on mortality distribution. The discussion of the bond price sensitivity towards
market interest rate fluctuation is also included in this final project |
|---|