Abstract
Longevity risk is defined as the uncertainty of mortality improvement in the future. It is a significant phenomenon that the average life span is getting longer than expected, especially among higher aged (elderly) people. Recently, the mortality-linked securities star to be prevalent in the financial markets. Financial institutions successfully transfer the mortality risk to the capital market by means of these securitizations. This paper intends to derive the reasonable market price of longevity bond and the market price of longevity risk as a reference to the mortality securitizations in Taiwan. The stochastic mortality and model parameter uncertainty are taken into consideration. We show how the risk-neutral valuation is applied on longevity bond. Last, we demonstrate an issuance of longevity bond in Taiwan as an example.