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DISCUSSION PAPER PI-0712

Completing the Survivor Derivatives Market

Paul Dawson, David Blake, Andrew J.G. Cairns and Kevin Dowd

Survivorship is a risk of considerable importance to developed economies. Survivor
derivatives are in their early stages and manage a risk which is arguably more serious
than that managed by credit derivatives. This paper takes the approach developed by
Dowd et al. [2006] for pricing survivor swaps and shows its application to other forms of
survivor derivatives, namely forwards, basis swaps, futures, forward swaps, swaptions,
futures options and combined option products. It concludes by considering applications
for these products by hedgers and financial engineers.