Securitization of disability risk via bonds and swaps

Abstract

Purpose

Two strands of the literature are combined, namely the modeling of disability insurance and the design, valuation and discussion of insurance-linked securities.

Design/methodology/approach

This paper provides a discussion regarding the advantages and detriments of disability-linked securities in comparison with mortality-linked bonds and swaps as well as regarding potential disability-linked indices and the potential use. The discussion is followed by an introduction of a potential design and a corresponding valuation of disability bonds and swaps.

Findings

This securitization will provide useful tools for the risk management of disability risk in a risk-based regulatory framework.

Originality/value

No disability-linked securities have been defined and discussed so far.

Citation

Maegebier, A.H. (2015), "Securitization of disability risk via bonds and swaps", Journal of Risk Finance, Vol. 16 No. 4, pp. 407-424. https://doi.org/10.1108/JRF-11-2014-0166