eThesis - School of Business electronic theses

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China has gradually stepped into an aging society, and the living quality of the aged has been declining substantially due to the insufficient cash flow. The longevity risk is accelerated correspondingly. In this paper, housing reverse mortgage longevity risk securitization is introduced, and empirical analysis is conducted with the survivor bonds as the case. According to the longevity risk bond model, a sensitivity test is carried out on the survivor bonds by acknowledging the impact of mortality improvement on the investment income. This is seen to be of assistance for the design of future housing reverse mortgage longevity risk bonds. The main body of this paper consists of six parts. The first chapter is the introduction, covering a brief research background, research problems, assumptions and limitations. The second chapter is the literature review. The development of the longevity risk market, management method, securitization products, longevity risk, pricing model of longevity risk derivatives and optimal allocation design have been reviewed. The third chapter is the methodology including both qualitative and quantitative methods used in this study. The longevity risk bond type, structure and cash flow analysis of the current housing reverse mortgage loan is introduced with emphasis. The fourth chapter is the overview of the background to study, with housing reverse mortgage, longevity risk securitization and the securitization of the housing reverse mortgage loan. Secondly, the meaning of longevity risk and mortality risk is illustrated broadly. The fifth chapter is the empirical analysis of the impact of housing reverse mortgage loan longevity risk bond on the investment income. Sensitivity analysis is conducted for the natural mortality and average housing price growth rate. The sixth chapter is the conclusion. It summarizes the main contribution, managerial conclusions, and puts forward some new prospects on future researches. To conclude, throughout the sensitivity test, it can be found that the Lee-carter model is more dynamic, and can be modified to more forms in mortality prospect researches. The results also show that, there is a limited impact on investor's returns along with the mortality improvement, which oversees that it fits Chinese market. At last, longevity risk bonds connected with enterprise annuity and equity incentive could be studied to meet the needs of financial markets in the near future.