Using bootstrapping to incorporate model error for risk-neutral pricing of longevity risk
Where mortality projection is concerned, it is essential to quantify the extent of the prediction error. This is especially important in light of the aggravating risk of longevity and as a result the increasing demand for longevity-linked products. In the literature so far, only parameter error and...
| Main Authors: | , , |
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| Format: | Journal Article |
| Published: |
Elsevier BV
2015
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| Online Access: | http://hdl.handle.net/20.500.11937/46974 |
| _version_ | 1848757707443535872 |
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| author | Yang, B. Li, Ka Ki Jackie Balasooriya, U. |
| author_facet | Yang, B. Li, Ka Ki Jackie Balasooriya, U. |
| author_sort | Yang, B. |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | Where mortality projection is concerned, it is essential to quantify the extent of the prediction error. This is especially important in light of the aggravating risk of longevity and as a result the increasing demand for longevity-linked products. In the literature so far, only parameter error and process error have been considered jointly while the issue of model error has yet been systematically studied. In this paper, we propose a method to account for process error, parameter error and model error in an integrated manner by modifying the semi-parametric bootstrapping technique. We apply the method to two data sets from the Continuous Mortality Investigation (CMI) and use the simulated scenarios to price the qq-forward contracts via the maximum entropy approach. We find that model selection has a significant impact on the risk-neutral valuation results and thus it is crucial to incorporate model error in mortality projection. |
| first_indexed | 2025-11-14T09:32:22Z |
| format | Journal Article |
| id | curtin-20.500.11937-46974 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T09:32:22Z |
| publishDate | 2015 |
| publisher | Elsevier BV |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-469742017-09-13T15:57:24Z Using bootstrapping to incorporate model error for risk-neutral pricing of longevity risk Yang, B. Li, Ka Ki Jackie Balasooriya, U. Risk-neutral pricing Longevity risk Model error Bootstrapping Maximum entropy method Where mortality projection is concerned, it is essential to quantify the extent of the prediction error. This is especially important in light of the aggravating risk of longevity and as a result the increasing demand for longevity-linked products. In the literature so far, only parameter error and process error have been considered jointly while the issue of model error has yet been systematically studied. In this paper, we propose a method to account for process error, parameter error and model error in an integrated manner by modifying the semi-parametric bootstrapping technique. We apply the method to two data sets from the Continuous Mortality Investigation (CMI) and use the simulated scenarios to price the qq-forward contracts via the maximum entropy approach. We find that model selection has a significant impact on the risk-neutral valuation results and thus it is crucial to incorporate model error in mortality projection. 2015 Journal Article http://hdl.handle.net/20.500.11937/46974 10.1016/j.insmatheco.2015.02.004 Elsevier BV restricted |
| spellingShingle | Risk-neutral pricing Longevity risk Model error Bootstrapping Maximum entropy method Yang, B. Li, Ka Ki Jackie Balasooriya, U. Using bootstrapping to incorporate model error for risk-neutral pricing of longevity risk |
| title | Using bootstrapping to incorporate model error for risk-neutral pricing of longevity risk |
| title_full | Using bootstrapping to incorporate model error for risk-neutral pricing of longevity risk |
| title_fullStr | Using bootstrapping to incorporate model error for risk-neutral pricing of longevity risk |
| title_full_unstemmed | Using bootstrapping to incorporate model error for risk-neutral pricing of longevity risk |
| title_short | Using bootstrapping to incorporate model error for risk-neutral pricing of longevity risk |
| title_sort | using bootstrapping to incorporate model error for risk-neutral pricing of longevity risk |
| topic | Risk-neutral pricing Longevity risk Model error Bootstrapping Maximum entropy method |
| url | http://hdl.handle.net/20.500.11937/46974 |