Related papers: State Space Vasicek Model of a Longevity Bond
In this paper, we establish a market model for the term structure of forward inflation rates based on the risk-neutral dynamics of nominal and real zero-coupon bonds. Under the market model, we can price inflation caplets as well as…
Interest-rate risk is a key factor for property-casualty insurer capital. P&C companies tend to be highly leveraged, with bond holdings much greater than capital. For GAAP capital, bonds are marked to market but liabilities are not, so…
We present a novel approach for the bank's decision problem, incorporating Limited Liability in the objective function. Accordingly, we consider continuous time models, with and without Limited Liability. We compare the solutions of these…
We introduce an extension to Merton's famous continuous time model of optimal consumption and investment, in the spirit of previous works by Pliska and Ye, to allow for a wage earner to have a random lifetime and to use a portion of the…
We consider a general one-factor short rate model, in which the instantaneous interest rate is driven by a univariate diffusion with time independent drift and volatility. We construct recursive formula for the coefficients of the Taylor…
The emergence and progression of multiple chronic conditions (MCC) over time often form a dynamic network that depends on patient's modifiable risk factors and their interaction with non-modifiable risk factors and existing conditions.…
We derive a general multiple state model for critical illness insurances. In contrast to the classical model, we take into account that the probability of death for a dread disease sufferer may depend on the duration of the disease, and the…
To make medium- and long-term insurance products attractive, it is essential to enable participation in stock market returns. However, to eliminate downside risk, guarantees must be included, which naturally leads to the challenge of…
An efficient method to price bonds with optional sinking feature is presented. Such instruments equip their issuer with the option (but not the obligation) to redeem parts of the notional prior to maturity, therefore the future cash flows…
We extend the lifecycle model (LCM) of consumption over a random horizon (a.k.a. the Yaari model) to a world in which (i.) the force of mortality obeys a diffusion process as opposed to being deterministic, and (ii.) a consumer can adapt…
We investigate state-level age-specific mortality trends based on the United States Mortality Database (USMDB) published by the Human Mortality Database. In tandem with looking at the longevity experience across the 51 states, we also…
The last two centuries have seen a significant increase in life expectancy. Although past trends suggest that mortality will continue to decline in the future, uncertainty and instability about the development is greatly increased due to…
The aim of this paper is to present a dual-term structure model of interest rate derivatives in order to solve the two hardest problems in financial modeling: the exact volatility calibration of the entire swaption matrix, and the…
The purpose of this paper is to study the generalized Fong--Vasicek two-factor interest rate model with stochastic volatility. In this model the dispersion of the stochastic short rate (square of volatility) is assumed to be stochastic as…
The aim of this paper is to propose a realistic and operational model to quantify the systematic risk of mortality included in an engagement of retirement. The model presented is built on the basis of model of Lee-Carter. The stochastic…
We present a detailed methodological study of the application of the modified profile likelihood method for the calibration of nonlinear financial models characterised by a large number of parameters. We apply the general approach to the…
Cohort effects are important factors in determining the evolution of human mortality for certain countries. Extensions of dynamic mortality models with cohort features have been proposed in the literature to account for these factors under…
In constant parameter compartmental models an early onset of herd immunity is at odds with estimates of R values from early stage growth. This paper utilizes a result from the theory of interest rate modeling, namely a bond pricing formula…
Time-varying parameter (TVP) regressions commonly assume that time-variation in the coefficients is determined by a simple stochastic process such as a random walk. While such models are capable of capturing a wide range of dynamic…
There have been significant efforts devoted to solving the longevity risk given that a continuous growth in population ageing has become a severe issue for many developed countries over the past few decades. The Cairns-Blake-Dowd (CBD)…