LONGEVITY DERIVATIVES

Securities that give a hedge versus other parties which are vulnerable to longevity risks through their companies such as insurers and pension plan managers. These derivatives are created to have accelerating huge payouts as a picked population group stays longer than was initially anticipated or computed.

The first and most standard type of longevity derivatives is the longevity bond (also called survivor bond) that pays a coupon according to "survivorship" of an indicated population group. As the mortality rate of the said population group increases, coupon payments drops until it reaches zero. It is also expanded to forward contracts, options, and swaps.

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