Modeling Mortality-Linked Securities

Abstract

The Swiss Re bond is the first mortality risk contingent security. In this research, we introduced two modifications to address some criticisms about the bond's original index. First, we added an economic variable into our mortality index, because mortality experience is affected by economical parameters. Second, we modified the location parameter in the index to capture the mortality experienced in different geographic regions. Finally, we studied how the new index could affect the bond's price. Projections and calculations were made using R.