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Pricing \(q\)-forward contracts: an evaluation of estimation window and pricing method under different mortality models. (English) Zbl 1401.91097

Summary: The aim of this paper is to study the impact of various sources of uncertainty on the pricing of a special longevity-based instrument: a \(q\)-forward contract. At the expiry of a \(q\)-forward contract, the realized mortality rate for a given population is exchanged in return for a fixed (mortality) rate that is agreed at the initiation of the contract. Pricing a \(q\)-forward involves determining this fixed rate. In our study, we disentangle three main sources of uncertainty and consider their impact on pricing: model choice for the underlying mortality rate, time-window used for estimation and the pricing method itself.

MSC:

91B30 Risk theory, insurance (MSC2010)
91G30 Interest rates, asset pricing, etc. (stochastic models)
60G50 Sums of independent random variables; random walks
62P05 Applications of statistics to actuarial sciences and financial mathematics

Software:

fpp; forecast; Forecast
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References:

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