Abstract
Recently, securitization of mortality risk or longevity risk draws a plenty of attention in the financial market. Pure mortality or longevity securities not only provide an alternative risk management method for life insurers, but also offer a novel investment opportunity for investors. The Japan Tohoku earthquake of 11th March, 2011, has caused some countries to consider and evaluate the possibility of issuance of catastrophic mortality bonds. Thus, how to precisely capture and price mortality risks becomes a very important issue. Our study will take the Swiss Re mortality bond of 2003 as an example to discuss mortality rates modeling and mortality bond price. We adopt two mortality stochastic models that takes into account a jump process together with the incomplete market pricing theory-Wang transform to calculate the implied market price of risk. The last, we show how to apply the estimated market price of risk to calculate the par spread of Swiss Re mortality bond of 2005.