Research

Multivariate Exponential Tilting and Pricing Implications for Mortality Securitization

Normalized exponential tilting is an extension of classical theories, includ-ing the Capital Asset Pricing Model (CAPM) and the Black-Merton-Scholes model, to price risks with general-shaped distributions. The need for chang-ing multivariate probability measures arises in pricing contingent claims on multiple underlying assets or liabilities. In this article, we apply it to val-uation of mortality-based securities written on mortality indices of several countries. We show how to use multivariate exponential tilting to price the first pure mortality security, the Swiss Re bond. The same technique can be applied in other mortality securitization pricing.

Publication Information
Article Title: Multivariate Exponential Tilting and Pricing Implications for Mortality Securitization
Journal: Journal of Risk and Insurance (Dec, 2006)
Author(s): Cox, Samuel H.;  Lin, Yijia;  Wang, Shaun
Researcher Information
    
Lin, Yijia
Lin, Yijia
N. Z. Snell Life Insurance Professor
Finance
HLH 425 V
P.O. Box 880490
University of Nebraska-Lincoln
Lincoln, NE 68588-0490, USA
Phone: (402) 472-0093
Fax: (402) 472-5140
yijialin@unl.edu