Table of Contents Author Guidelines Submit a Manuscript
Discrete Dynamics in Nature and Society
Volume 2015, Article ID 574091, 12 pages
http://dx.doi.org/10.1155/2015/574091
Research Article

Heterogeneous Expectations and Speculative Behavior in Insurance-Linked Securities

1China Institute for Actuarial Science, Central University of Finance and Economics, Beijing 100081, China
2School of Management, University of Chinese Academy of Sciences, Beijing 100190, China

Received 26 September 2014; Accepted 23 February 2015

Academic Editor: Driss Boutat

Copyright © 2015 Min Zheng. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Linked References

  1. P. Nowak and M. Romaniuk, “Pricing and simulations of catastrophe bonds,” Insurance: Mathematics & Economics, vol. 52, no. 1, pp. 18–28, 2013. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  2. F. Bourguignon and C. Morrisson, “Inequality among world citizens: 1820–1992,” American Economic Review, vol. 92, no. 4, pp. 727–744, 2002. View at Publisher · View at Google Scholar · View at Scopus
  3. A. J. Cairns, D. Blake, and K. Dowd, “Modelling and management of mortality risk: a review,” Scandinavian Actuarial Journal, no. 2-3, pp. 79–113, 2008. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  4. J. S.-H. Li and M. R. Hardy, “Measuring basis risk in longevity hedges,” North American Actuarial Journal, vol. 15, no. 2, pp. 177–200, 2011. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  5. J. D. Cummins and P. Trainar, “Securitization, insurance, and reinsurance,” Journal of Risk and Insurance, vol. 76, no. 3, pp. 463–492, 2009. View at Publisher · View at Google Scholar · View at Scopus
  6. P. Barrieu and L. Albertini, The Handbook of Insurance-Linked Securities, John Wiley & Sons, New York, NY, USA, 2009. View at Publisher · View at Google Scholar
  7. PwC, “Unlocking the potential of ILS,” Tech. Rep., PwC, 2012. View at Google Scholar
  8. S. S. Wang, “A universal framework for pricing financial and insurance risks,” Astin Bulletin, vol. 32, no. 2, pp. 213–234, 2002. View at Publisher · View at Google Scholar · View at MathSciNet
  9. Y. Lin and S. H. Cox, “Securitization of mortality risks in life annuities,” Journal of Risk and Insurance, vol. 72, no. 2, pp. 227–252, 2005. View at Publisher · View at Google Scholar · View at Scopus
  10. Y. Lin and S. H. Cox, “Securitization of catastrophe mortality risks,” Insurance: Mathematics & Economics, vol. 42, no. 2, pp. 628–637, 2008. View at Publisher · View at Google Scholar · View at Scopus
  11. S. H. Cox, Y. Lin, and S. Wang, “Multivariate exponential tilting and pricing implications for mortality securitization,” Journal of Risk and Insurance, vol. 73, no. 4, pp. 719–736, 2006. View at Publisher · View at Google Scholar · View at Scopus
  12. D. Bauer and J. Ruß, “Pricing longevity bonds using implied survival probabilities,” Working Paper, 2006. View at Google Scholar
  13. M. Denuit, P. Devolder, and A.-C. Goderniaux, “Securitization of longevity risk: pricing survivor bonds with Wang transform in the Lee-Carter framework,” Journal of Risk and Insurance, vol. 74, no. 1, pp. 87–113, 2007. View at Publisher · View at Google Scholar · View at Scopus
  14. H. Chen and S. H. Cox, “Modeling mortality with jumps: applications to mortality securitization,” Journal of Risk and Insurance, vol. 76, no. 3, pp. 727–751, 2009. View at Publisher · View at Google Scholar · View at Scopus
  15. D. Bauer, M. Börger, and J. Ruß, “On the pricing of longevity-linked securities,” Insurance: Mathematics & Economics, vol. 46, no. 1, pp. 139–149, 2010. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  16. E. Briys, “Pricing insurance linked bonds,” in Options, Futures and Exotic Derivatives, E. Briys and M. Bellalah, Eds., pp. 225–240, John Wiley & Sons, Chichester, UK, 1998. View at Google Scholar
  17. M. A. Milevsky and S. D. Promislow, “Mortality derivatives and the option to annuitise,” Insurance: Mathematics & Economics, vol. 29, no. 3, pp. 299–318, 2001. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  18. P. Poncet and V. Vaugirard, “The pricing of insurance-linked securities under interest rate uncertainty,” The Journal of Risk Finance, vol. 3, no. 3, pp. 48–59, 2002. View at Publisher · View at Google Scholar
  19. M. Dahl, “Stochastic mortality in life insurance: market reserves and mortality-linked insurance contracts,” Insurance: Mathematics & Economics, vol. 35, no. 1, pp. 113–136, 2004. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  20. A. J. Cairns, D. Blake, and K. Dowd, “Pricing death: frameworks for the valuation and securitization of mortality risk,” ASTIN Bulletin, vol. 36, no. 1, pp. 79–120, 2006. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  21. A. J. Cairns, D. Blake, and K. Dowd, “A two-factor model for stochastic mortality with parameter uncertainty: theory and calibration,” Journal of Risk and Insurance, vol. 73, no. 4, pp. 687–718, 2006. View at Publisher · View at Google Scholar · View at Scopus
  22. J. Li and A. Szimayer, “The uncertain mortality intensity framework: pricing and hedging unit-linked life insurance contracts,” Insurance: Mathematics & Economics, vol. 49, no. 3, pp. 471–486, 2011. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  23. J. S.-H. Li, “Pricing longevity risk with the parametric bootstrap: a maximum entropy approach,” Insurance: Mathematics & Economics, vol. 47, no. 2, pp. 176–186, 2010. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  24. J. S.-H. Li and A. C.-Y. Ng, “Canonical valuation of mortality-linked securities,” Journal of Risk and Insurance, vol. 78, no. 4, pp. 853–884, 2011. View at Publisher · View at Google Scholar · View at Scopus
  25. L. Friedberg and A. Webb, “Life is cheap: using mortality bonds to hedge aggregate mortality risk,” The B.E. Journal of Economic Analysis & Policy, vol. 7, no. 1, article 31, 2007. View at Publisher · View at Google Scholar
  26. R. Mehra and E. C. Prescott, “The equity premium: a puzzle,” Journal of Monetary Economics, vol. 15, no. 2, pp. 145–161, 1985. View at Publisher · View at Google Scholar · View at Scopus
  27. M. Egami and V. R. Young, “Indifference prices of structured catastrophe (CAT) bonds,” Insurance: Mathematics & Economics, vol. 42, no. 2, pp. 771–778, 2008. View at Publisher · View at Google Scholar
  28. S. H. Cox, Y. Lin, and H. Pedersen, “Mortality risk modeling: applications to insurance securitization,” Insurance: Mathematics & Economics, vol. 46, no. 1, pp. 242–253, 2010. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  29. M. Milevsky, S. Promislow, and V. Young, “Financial valuation of mortality risk via the instantaneous Sharpe ratio: applications to pricing pure endowments,” Working Paper, York University and University of Michigan, 2005. View at Google Scholar
  30. E. Bayraktar, M. A. Milevsky, S. Promislow, and V. R. Young, “Valuation of mortality risk via the instantaneous Sharpe ratio: applications to life annuities,” Journal of Economic Dynamics & Control, vol. 33, no. 3, pp. 676–691, 2009. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  31. S. H. Cox and H. W. Pedersen, “Catastrophe risk bonds,” North American Actuarial Journal, vol. 4, no. 4, pp. 56–82, 2000. View at Publisher · View at Google Scholar · View at MathSciNet
  32. R. Zhou, J. S.-H. Li, and K. S. Tan, “Economic pricing of mortality-linked securities: a tâtonnement approach,” Journal of Risk and Insurance, vol. 82, no. 1, pp. 65–96, 2015. View at Publisher · View at Google Scholar
  33. H. Chen, M. Sherris, T. Sun, and W. Zhu, “Living with ambiguity: pricing mortality-linked securities with smooth ambiguity preferences,” Journal of Risk and Insurance, vol. 80, no. 3, pp. 705–732, 2013. View at Publisher · View at Google Scholar · View at Scopus
  34. A. Beja and M. B. Goldman, “On the dynamic behavior of prices in disequilibrium,” The Journal of Finance, vol. 35, no. 2, pp. 235–248, 1980. View at Publisher · View at Google Scholar
  35. W. A. Brock and C. H. Hommes, “A rational route to randomness,” Econometrica, vol. 65, no. 5, pp. 1059–1095, 1997. View at Publisher · View at Google Scholar · View at MathSciNet
  36. A. David, “Heterogeneous beliefs, speculation, and the equity premium,” Journal of Finance, vol. 63, no. 1, pp. 41–83, 2008. View at Publisher · View at Google Scholar · View at Scopus
  37. C. Chiarella, X.-Z. He, and M. Zheng, “Heterogeneous expectations and exchange rate dynamics,” European Journal of Finance, vol. 19, no. 5, pp. 392–419, 2013. View at Publisher · View at Google Scholar · View at Scopus
  38. G. Gennotte, “Optimal portfolio choice under incomplete information,” The Journal of Finance, vol. 41, no. 3, pp. 733–746, 1986. View at Publisher · View at Google Scholar
  39. A. Ziegler, Incomplete Information and Heterogeneous Beliefs in Continuous-Time Finance, Springer Finance Series, Springer, Berlin, Germany, 2003. View at MathSciNet
  40. G. Favara and Z. Song, “House price dynamics with dispersed information,” Journal of Economic Theory, vol. 149, pp. 350–382, 2014. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  41. W. A. Brock and C. H. Hommes, “Heterogeneous beliefs and routes to chaos in a simple asset pricing model,” Journal of Economic Dynamics & Control, vol. 22, no. 8-9, pp. 1235–1274, 1998. View at Publisher · View at Google Scholar · View at MathSciNet