PRODUCT INFORMATIONThere are seven applications in this section for custom-structuring and pricing instruments for hedging longevity and mortality risks by transferring them to capital markets. The descriptions in this section are brief. Click on the respective application link button to get to the application site, then click on the valuation procedure link for more details.
Longevity bond. This instrument is used to hedge against longevity risk by producing an income stream that closely matches expected outgo from cohort payments. If survival rates are higher than expected, then so will be the income stream produced by the longevity bond since payments are linked to the reference population survival index.
Fixed-coupon principal-at-risk longevity bond. This instrument hedges against longevity risk by deducting the value of terminal principal if survival rates are higher than thresholds at specific principal deduction times. The coupon payments from the bond are fixed-rate and non-mortality related.
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Floating-coupon principal-at-risk longevity bond. This instrument hedges against longevity risk by deducting the value of terminal principal if survival rates are higher than thresholds at specific principal deduction times. The coupon payments from the bond are floating-rate and non-mortality related.
Fixed-coupon principal-at-risk mortality bond. This instrument hedges against mortality risk by deducting the value of terminal principal if mortality rates are higher than thresholds at specific principal deduction times. The coupon payments from the bond are fixed-rate and non-mortality related.
Floating-coupon principal-at-risk mortality bond. This instrument hedges against mortality risk by deducting the value of terminal principal if mortality rates are higher than thresholds at specific principal deduction times. The coupon payments from the bond are floating-rate and non-mortality related.
Mortality swap. This instrument hedges against longevity and mortality risks through transformation of cash-flows in a way that significantly reduces uncertainty of their future values. Floating survival indices are swapped for known survival indices determined at creation of the instrument.
Survivor cap. This instrument hedges against longevity risk by providing payments if survival rates are higher than specified thresholds and zero otherwise. It hedges against the downside element of longevity risk while retaining the benefits of the upside element.
