Using hierarchical Archimedean copulas for modelling mortality dependence and pricing mortality-linked securities

Jackie Li, Uditha Balasooriya, Jia Liu

Research output: Contribution to journalArticleResearchpeer-review

Abstract

In this article, we explore the use of multivariate Archimedean copulas in modelling the mortality dependence between different countries and pricing mortality bonds. We study the fitting performance of multi-dimensional, fully nested, and partially nested Archimedean copulas and test 11 types of generators and two skewed distributions. To evaluate their practical usefulness, we adopt the fitted models to compute the market prices for some typical mortality bond structures. The results show that the copula assumption has a significant impact on the calculation of the prices of mortality-linked securities and the management of extreme mortality risks.

Original languageEnglish
Pages (from-to)505-518
Number of pages14
JournalAnnals of Actuarial Science
Volume15
Issue number3
DOIs
Publication statusPublished - 26 Nov 2021
Externally publishedYes

Keywords

  • Mortality bond
  • Mortality dependence
  • Nested Archimedean copulas

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