Two strands of the literature are combined, namely the modeling of disability insurance and the design, valuation and discussion of insurance-linked securities.
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.
This securitization will provide useful tools for the risk management of disability risk in a risk-based regulatory framework.
No disability-linked securities have been defined and discussed so far.
The author would like to thank the anonymous reviewers for their suggestions on previous versions of the manuscript.
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