Model-Independent Price Bounds for Catastrophic Mortality Bonds

Raj Kumari Bahl, Sotirios Sabanis

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

In this paper, we are concerned with the valuation of Catastrophic Mortality Bonds and, in particular, we examine the case of the Swiss Re Mortality Bond 2003 as a primary example of this class of assets. This bond was the first Catastrophic Mortality Bond to be launched in the market and encapsulates the behaviour of a well-defined mortality index to generate payoffs for bondholders. Pricing this type of bonds is a challenging task and no closed form solution exists in the literature. In our approach, we adapt the payoff of such a bond in terms of the payoff of an Asian put option and present a new approach to derive model-independent bounds exploiting comonotonic theory as illustrated in \cite{prime1} for the pricing of Asian options. We carry out Monte Carlo simulations to estimate the bond price and illustrate the strength of the bounds.
Original languageEnglish
Pages (from-to)276-291
JournalInsurance: Mathematics and Economics
Early online date20 Dec 2020
Publication statusPublished - 31 Jan 2021

Keywords / Materials (for Non-textual outputs)

  • q-fin.PR
  • math.PR
  • 91G20, 60G44


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