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A Bayesian approach to pricing longevity risk based on risk-neutral predictive distributions. (English) Zbl 1231.91438

Summary: We present a Bayesian approach to pricing longevity risk under the framework of the Lee-Carter methodology. Specifically, we propose a Bayesian method for pricing the survivor bond and the related survivor swap designed by Denuit et al. (2007). Our method is based on the risk neutralization of the predictive distribution of future survival rates using the entropy maximization principle discussed by Stutzer (1996). The method is illustrated by applying it to Japanese mortality rates.

MSC:

91G20 Derivative securities (option pricing, hedging, etc.)
91G80 Financial applications of other theories
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