life_settlements_and_longevity_structures by dandanhuanghuang


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Life Settlements and Longevity Structures: Pricing and Risk

Description:    Recent turbulence in the financial markets has highlighted the need for diversified portfolios with
                lower correlations between the different investments. Life settlements meet this need, offering
                investors the prospect of high, stable returns, uncorrelated with the broader financial markets.

                This book provides readers of all levels of experience with essential information on the process
                surrounding the acquisition and management of a portfolio of life settlements; the assessment,
                modelling and mitigation of the associated longevity, interest rate and credit risks; and practical
                approaches to financing and risk management structures. It begins with the history of life insurance
                and looks at how the need for new financing sources has led to the growth of the life settlements
                market in the United States.

                The authors provide a detailed exploration of the mathematical formulae surrounding the
                generation of mortality curves, drawing a parallel between the tools deployed in the credit
                derivatives market and those available to model longevity risk. Structured products and
                securitisation techniques are introduced and explained, starting with simple vanilla products and
                models before illustrating some of the investment structures associated with life settlements.
                Capital market mechanisms available to assist the investor in limiting the risks associated with life
                settlement portfolios are outlined, as are opportunities to use life settlement portfolios to mitigate
                the risks of traditional capital markets. The last section of the book covers derivative products,
                either available now or under consideration, that will reduce or potentially eliminate longevity risks
                within life settlement portfolios. It then reviews hedging and risk management strategies and
                considers how to measure the effectiveness of risk mitigation.

Contents:       Introduction by Con Keating

                1 Life Insurance: Primary and Secondary Markets


                1.1 History, application and termination of life insurance policies

                1.2 Life Insurance policy types and underwriting

                1.3 Development of the viatical settlement and life settlement markets

                1.4 The parties involved in a life settlement transaction

                1.5 The life settlement process

                1.6 Legal issues

                1.7 Other issues

                2 Mortality and Credit Structures, Valuation and Risk


                2.1 CDS and CDO contracts

                2.2 Valuation approach and data

                2.3 The Poisson process
2.4 Single life mortality calculations

2.5 Correlation and portfolio calculations

2.6 Rating transactions

2.7 Risk management of a structured life settlements portfolio

3 Structured Products and Securitization

3.1 Securitization

3.1.2 Prestructures

3.2 Structured products

3.3 The risks of structured products

3.4 Modelling

3.5 Life Settlement pool (LSP)

3.6 Conclusion

4 Examples of LSP Securitization: A Principal Protected Fund


4.1 A Simple example

4.2 Other pool examples

4.3 Group policies

4.4 Conclusion

Appendix: Sample product description outline

A4.1 Introduction

A4.2 Product description

A4.3 Marketing assessment

A4.4 Modelling and pricing

A4.5 Administration and accounting

A4.6 Conclusion

5 Capital Markets Products: Principal Protection


5.1 Bond constructions

5.2 A zero coupon bond

5.3 A coupon bond
5.4 A convertible bond

5.5 Principal protection

5.6 Longevity bonds

5.7 Sharia compliant bonds

5.8 Power bonds

5.9 CIOs and PACs, TACs and VADAMSs

5.10 Equity-linked notes

5.11 Conclusion

6 Structured Financing: Guaranteed Loan repayment


6.1 Project financing: Commercial and industrial uses

6.2 Retail product

6.3 Reverse mortgage or equity reversal programme

6.4 Asset swaps

6.5 The pension swap

6.6 A New CPPI product

6.7 Conclusion

7 Life Settlement Derivatives


7.1 Longevity bonds

7.2 Asset Swap

7.3 Mortality curves

7.4 Futures and forwards

7.5 Options

7.6 Synthetic pools

7.7 Conclusion

8 Hedging


8.1 Hedging longevity or extension risk

8.2 Hedging with inverse longevity bond
            8.3 Futures-forwards

            8.4 Options

            8.5 Caps, floors and swaptions

            8.6 Hedging liquidity risk

            8.7 Hedging credit risk

            8.8 HER (Hedge efficiency ratio) for an inverse longevity bond

            8.9 Conclusion




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