Pricing Survivor Forwards and Swaps in Incomplete Markets Using Simulation Techniques

M. Martin Boyer, Amélie Favaro, Lars Stentoft

Research output: Contribution to journalJournal articleResearchpeer-review


This article considers how to manage longevity risk using longevity derivatives products. We review the potential counterparties that naturally have exposure to this type of risk and we provide details on two very simple products, the survivor forward and the survivor swap, that can be used to trade this type of risk. We then discuss how such products can be priced using a simulation-based approach that has been shown to be successful in pricing financial derivatives. To illustrate the flexibility of the approach we price survivor forwards and swaps using the simple dynamics of the Lee and Carter [1992] mortality model. Our results show that premiums are generally increasing in maturity and in the assumed risk premium. Moreover, prices are more sensible to the future realized survivor index than to the risk premium, making the former more important to assess correctly.

Original languageEnglish
JournalLongevity Risk Management
Issue numberFall
Pages (from-to)69-87
Publication statusPublished - 2012

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