Developing a liquid longevity market requires reliable and well-designed financial instruments. An index-based longevity swap and a cap are analyzed in this paper under a tractable stochastic mortality model. The model is calibrated using Australian mortality data and analytical formulas for...

We introduce a new approach to model the market smile for inflation-linked derivatives by defining the Quadratic Gaussian Year-on-Year inflation model -- the QGY model. We directly define the model in terms of a year-on-year ratio of the inflation index on a discrete tenor structure, which,...

The paper analyzes one of the most common life insurance products — the so-called participating (or with profits) policy. This type of contract stands in contrast to unit-linked (UL) products in that interest is credited to the policy periodically according to some mechanism which smoothes...

This paper introduces, prices, and analyzes traffic light options. The traffic light option is an innovative structured OTC derivative developed independently by several London-based investment banks to suit the needs of Danish life and pension (L&P) companies, which must comply with the traffic...

The 30-year U.S. swap spreads have been negative since September 2008. We offer a novel explanation for this persistent anomaly. Through an illustrative model, we show that underfunded pension plans optimally use swaps for duration hedging. Combined with dealer banks' balance sheet constraints,...

In this paper we analyse how the policyholder surrender behaviour is influenced by changes in various sources of risk impacting a variable annuity (VA) contract embedded with a guaranteed minimum maturity benefit rider that can be surrendered anytime prior to maturity. We model the underlying...

This paper takes a contingent claim approach to the market valuation of equity and liabilities in life insurance companies. A model is presented which explicitly takes into account the facts that the holders of life insurance contracts (LICs) have the first claim on the company's assets whereas...

The paper analyzes one of the most common life insurance products --the so-called participating (or 'with profits') policy. This type of contract stands in contrast to Unit-Linked (UL) products in that interest is credited to the policy periodically according to some mechanism which smoothes...

This paper considers derivatives with payoffs that depend on a stock index and underlying LIBOR rates. A traffic light option pricing formula is derived under lognormality assumptions on the underlying processes. The traffic light option is aimed at the Danish life and pension sector to help...

This paper introduces, prices, and analyzes traffic light options. The traffic light option is an innovative structured OTC derivative developed independently by several London-based investment banks to suit the needs of Danish life and pension (Lamp;P) companies, which must comply with the...