Post by Sapphire Capital on Feb 26, 2009 22:04:09 GMT 4
Completing the Survivor Derivatives Market: A General Pricing Framework
Paul Dawson
Kent State University
Kevin Dowd
Nottingham University Business School (NUBS)
Andrew J. G. Cairns
Heriot-Watt University - Department of Actuarial Science & Statistics
David P. Blake
City University London - Cass Business School - The Pensions Institute
February 10, 2009
Pensions Institute Discussion Paper No. PI-0712
Abstract:
Survivorship is a risk of considerable importance to developed economies. Survivor derivatives are in their early stages and manage a risk which is arguably more serious than that managed by credit derivatives. This paper takes the approach developed by Dowd et al. [2006], Olivier and Jeffery [2004], Smith [2005] and Cairns [2007] for pricing survivor swaps and shows its application to the pricing of other forms of linear survivor derivatives, such as forwards, basis swaps, forward swaps and futures. It then shows how a recent option pricing model set out by Dawson et al. [2009] can be used to price survivor options such as survivor swaptions, caps, floors and combined option products. It concludes by considering applications of these products to a pension fund that wishes to hedge its survivorship risks.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1340359_code23455.pdf?abstractid=1340359&mirid=1
Paul Dawson
Kent State University
Kevin Dowd
Nottingham University Business School (NUBS)
Andrew J. G. Cairns
Heriot-Watt University - Department of Actuarial Science & Statistics
David P. Blake
City University London - Cass Business School - The Pensions Institute
February 10, 2009
Pensions Institute Discussion Paper No. PI-0712
Abstract:
Survivorship is a risk of considerable importance to developed economies. Survivor derivatives are in their early stages and manage a risk which is arguably more serious than that managed by credit derivatives. This paper takes the approach developed by Dowd et al. [2006], Olivier and Jeffery [2004], Smith [2005] and Cairns [2007] for pricing survivor swaps and shows its application to the pricing of other forms of linear survivor derivatives, such as forwards, basis swaps, forward swaps and futures. It then shows how a recent option pricing model set out by Dawson et al. [2009] can be used to price survivor options such as survivor swaptions, caps, floors and combined option products. It concludes by considering applications of these products to a pension fund that wishes to hedge its survivorship risks.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1340359_code23455.pdf?abstractid=1340359&mirid=1