The Research On Longevity Bonds Pricing Based On Modified Gravity Model And Risk Cubic Approach

With the development of economy and medical technology,the life expectancy of the population has been continuously extended,and the trend of population aging has become increasingly evident.As the phenomenon of aging of Chinese society becomes more and more serious,government,social security fund and insurance companys are facing huge risks brought about by aging.In recent years,longevity risk securitization has attracted extensive attention.As the most commonly used method of longevity risk securitization,longevity bond can effectively transfer longevity risk to the capital market.The paper designs a trigger longevity bond with adjustable touch points based on modified gravity model and risk cubic approach.Mortality forecast is the basis for pricing longevity bonds.This paper firstly focusing on the APC model and its derived gravity model.The modified gravity model modifies its time series process from the theoretical level,overcoming the dependence on identifiable constraints.Secondly,this paper models the mortality data of China and the United States over the past 20 years based on the modified gravity model,and predicts the mortality rate of the Chinese population aged 60 to 79 over the next 10 years.On this basis,a longevity bond with adjustable touch points was designed,and the risk premium was priced in combination with the risk cube risk cubic approach.The empirical evidence in this paper shows that it is effective to calibrate the Chinese population with the US population as a large population.The difference between the two is an effective factor for predicting the mortality rate of the Chinese population.the prediction of the modified gravity model is more stable than the prediction using the APC model alone.In the pricing of longevity bonds,we get three groups of relatively reasonable risk premium pricing by adjusting the up and down touch points.Finally,we put forward suggestions on longevity risk management in China,combining with the results of this study and longevity risk management methods.