Mortality Dependence and Longevity Bond Pricing: A Dynamic Factor Copula Mortality Model With the GAS Structure
提出一个基于双因子Copula和广义自回归得分框架的动态多群体死亡率模型，用于捕捉死亡率依赖性的时变特征，并以瑞士再保险Kortis长寿趋势债券为例进行定价，发现模型生成的平价利差接近实际发行债券的利差。
Abstract Modeling mortality dependence for multiple populations has significant implications for mortality/longevity risk management. A natural way to assess multivariate dependence is to use copula models. The application of copula models in the multipopulation mortality analysis, however, is still in its infancy. In this article, we present a dynamic multipopulation mortality model based on a two‐factor copula and capture the time‐varying dependence using the generalized autoregressive score (GAS) framework. Our model is simple and flexible in terms of model specification and is widely applicable to high dimension data. Using the Swiss Re Kortis longevity trend bond as an example, we use our model to estimate the probability distribution of principal reduction and some risk measures such as probability of first loss, conditional expected loss, and expected loss. Due to the similarity in the structure and design of CAT bonds and mortality/longevity bonds, we borrow CAT bond pricing techniques for mortality/longevity bond pricing. We find that our pricing model generates par spreads that are close to the actual spreads of previously issued mortality/longevity bonds.