Pricing Life Settlements and their Effects on Efficient Frontier

• Main Authors: Yo-Hao Cheng, 鄭又豪
• Other Authors: Sheau-wen Yang
• Format: Others
• Language: en_US
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/64066266311898386807

碩士 === 國立中央大學 === 財務金融研究所 === 100 === After experiencing the global financial crisis during 2007, the investment banks notice that this recession is very profound in depth and width and they also discover that high correlation among products in portfolios is a very important factor which causes huge chain reaction among different markets. Therefore, institutional investors focus their attention on insurance market. The most vital characteristics of longevity-linked product is that they don’t fluctuate with stock market but the duration of survival of people. Life settlements are the transactions of life insurance products. Through this transaction, the particular insureds who have personal reasons can get a lump sum payment to reallocate their money; however, the investors who purchase polices gain the policy face value after the insureds died. With the completeness of relative regulation and openness of law, this type of sale is legal but there’s no consensus on pricing model, which makes pricing process not transparent and consistent. In this paper, we investigate using stochastic mortality process to pricing life settlements. Then, after pricing life settlements, we will put life settlements into original portfolios and analyze the effect of efficient frontier.