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© 2025 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License.

Abstract

As life expectancy increases, pension plans face growing longevity risk. Standardized longevity-linked securities such as survivor contracts allow pension plans to transfer this risk to capital markets. However, more consensus is needed on the appropriate mortality model and premium principle to price these contracts. This paper investigates the impact of the mortality model and premium principle choice on the pricing, risk measurement, and modeling of survivor contracts. We present a framework for evaluating risk measures associated with survivor contracts, specifically survivor forwards (S-forward) and survivor swaps (S-swaps). We analyze how the mortality model and premium principle assumptions affect pricing and risk measures (value-at-risk and expected shortfall). Four mortality models (Lee–Carter, Renshaw–Haberman, Cairns–Blake–Dowd, and M6) and eight premium principles (Wang, proportional hazard, dual power, Gini, exponential, standard deviation, variance, and median absolute deviation) are considered. Our analysis highlights the need to refine mortality models and premium principles to enhance pricing accuracy and risk management. We also suggest regulators and practitioners incorporate expected shortfall alongside value-at-risk to capture tail risks and improve capital allocation.

Details

Title
Uncertainty in Pricing and Risk Measurement of Survivor Contracts
Author
So, Kenrick Raymond 1   VIAFID ORCID Logo  ; Cruz, Stephanie Claire 1   VIAFID ORCID Logo  ; Elias, Antonio Marcella 1   VIAFID ORCID Logo  ; Briones, Jeric 2   VIAFID ORCID Logo  ; Len Patrick Dominic Garces 3   VIAFID ORCID Logo 

 Department of Mathematics, Ateneo de Manila University, Quezon City 1108, Philippines[email protected] (L.P.D.G.) 
 Department of Mathematics, Ateneo de Manila University, Quezon City 1108, Philippines[email protected] (L.P.D.G.); Department of Finance and Accounting, Ateneo de Manila University, Quezon City 1108, Philippines 
 Department of Mathematics, Ateneo de Manila University, Quezon City 1108, Philippines[email protected] (L.P.D.G.); School of Mathematical and Physical Sciences, University of Technology Sydney, Ultimo, NSW 2007, Australia 
First page
35
Publication year
2025
Publication date
2025
Publisher
MDPI AG
e-ISSN
22279091
Source type
Scholarly Journal
Language of publication
English
ProQuest document ID
3171168321
Copyright
© 2025 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License.