If We Can Simulate It, We Can Insure It: An Application to Longevity Risk Management

M. Martin Boyer, Lars Stentoft

Research output: Contribution to journalJournal articleResearchpeer-review


This paper proposes a unified framework for measuring and managing longevity risk. Specifically, we develop a flexible framework for valuing survivor derivatives like forwards, and swaps, as well as options both of European and American style. Our framework is essentially independent of the assumed underlying dynamics and the choice of method for risk neutralization and relies only on the ability to simulate from the risk neutral process. We provide an application to derivatives on the survivor index when the underlying dynamics are from a Lee-Carter model. Our results show that taking the optionality into consideration is important from a pricing perspective.
Original languageEnglish
JournalInsurance: Mathematics and Economics
Issue number1
Pages (from-to)33-45
Publication statusPublished - Jan 2013

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