In this paper, we are concerned with the valuation of Catastrophic Mortality Bonds and, in particular, we examine the case of the Swiss Re Mortality Bond 2003 as a primary example of this class of assets. This bond was the first Catastrophic Mortality Bond to be launched in the market and encapsulates the behaviour of a well-defined mortality index to generate payoffs for bondholders. Pricing this type of bonds is a challenging task and no closed form solution exists in the literature. In our approach, we adapt the payoff of such a bond in terms of the payoff of an Asian put option and present a new approach to derive model-independent bounds exploiting comonotonic theory as illustrated in prime1 0pt%DIFAUXCMD and \mbox{%DIFAUXCMD Simon }0pt%DIFAUXCMD } for the pricing of Asian options. We carry out Monte Carlo simulations to estimate the bond price and illustrate the strength of the bounds.
In this paper, we are concerned with the valuation of Catastrophic Mortality Bonds and, in particular, we examine the case of the Swiss Re Mortality Bond 2003 as a primary example of this class of assets. This bond was the first Catastrophic Mortality Bond to be launched in the market and encapsulates the behaviour of a well-defined mortality index to generate payoffs for bondholders. Pricing these type of bonds is a challenging task and no closed form solution exists in the literature. In our approach, we express the payoff of such a bond in terms of the payoff of an Asian put option and present a new approach to derive model-independent bounds exploiting comonotonic theory as illustrated in prime1 , \mbox{%DIFAUXCMD 20pt%DIFAUXCMD and \mbox{%DIFAUXCMD Simon }0pt%DIFAUXCMD } for the pricing of Asian options. We carry out Monte Carlo simulations to estimate the bond price and illustrate the quality of the bounds.
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