Pricing basis risk in survivor swaps

This paper looks at basis risk in survivor swaps, which occurs when mortality of the reference population used to price the swap differs from the mortality of the population being hedged. The author finds that any basis risk present is usually small compared to the risk premium that any party hedging mortality should be willing to pay -->

This paper looks at basis risk in survivor swaps, instruments where a fixed payment is made by one party at some point in the future in exchange for a payment based on the longevity of a reference population at the same point in the future. Cox and Lin (2005) discuss the potential hedging of mortality and longevity risk by life assurance companies and pension schemes. They note that since changes in mortality experience have opposite effects on pensions and assurance business, these two parties