# US 2008/0189222 A1 · Creating and Trading Building Block Mortality Derivatives To Transfer and Receive Mortality Risk In A Liquid Market > Agents: this data is available as JSON from the patentgrep API and MCP server — see https://patentgrep.com/llms.txt - Number: US 2008/0189222 A1 - Document ID: US20080189222A1 - Status: Published application - Kind: A1 - Application number: 11/681,608 - Filed: 2007-03-02 - Published: 2008-08-07 - Earliest claimed: 2007-02-05 - Assignees: JPMorgan Chase Bank, N.A. - Inventors: Guy D. Coughlan; David Epstein; Alen Sen Kay Ong; Robert J Hall - Web page: https://patentgrep.com/patent/US20080189222A1 ## CPC - G06Q 40/04: Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange - G06Q 40/00: Finance; Insurance; Tax strategies; Processing of corporate or income taxes - G06Q 40/06: Asset management; Financial planning or analysis - G06Q 40/08: Insurance - G06Q: INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR ## Abstract The invention comprises A comprises a system and method for hedging or mitigating mortality exposure risk in a portfolio of mortality-dependent instruments. A mortality risk or longevity risk of the portfolio is calculated or otherwise determined. Then the sensitivity of the portfolio to mortality risk or longevity risk is calculated or otherwise determined, in other words, how much is cost or value of the portfolio affected by a change in mortality rate. To account for that mortality exposure, a selection is made of building block mortality derivatives that include age-based mortality derivatives. The selected plurality of selected plurality of building block mortality derivatives are used to create a hedge against the mortality risk or longevity risk of the portfolio. ## Claims ### Claim 1 A computer-implemented method for establishing a plurality of building block mortality derivatives that can be used to hedge against mortality risk or longevity risk, comprising: establishing a plurality of age ranges; establishing a mortality rate related index to be applied to building block derivatives; establishing a payout based on the performance of the mortality rate related index; and creating a plurality of building block mortality derivatives each hedging risk for a specified age range; wherein the payout for a building block mortality derivative correlates to the performance of the mortality rate related index; thereby providing a plurality of age-segmented mortality derivatives to hedge risk. ### Claim 2 (depends on 1) The computer-implemented method of claim 1, wherein said plurality of building block derivatives are age-stratified mortality derivatives established for specific age ranges selected from the continuum of life expectancy from infancy to a maximum age. ### Claim 3 (depends on 1) The computer-implemented method of claim 1, wherein said plurality of building block derivatives are age-stratified mortality derivatives established for a series of contiguous age ranges comprising at least a 50 year span. ### Claim 4 (depends on 1) The computer-implemented method of claim 1, wherein said plurality of building block derivatives are age-stratified mortality derivatives established for a series of contiguous age ranges from infancy to a maximum age. ### Claim 5 (depends on 1) The computer-implemented method of claim 1, wherein some of the age segments in the plurality of building block derivatives are longer than others. ### Claim 6 (depends on 1) The computer-implemented method of claim 1, wherein the age segments in the plurality of building block derivatives are 1 year segments. ### Claim 7 (depends on 1) The computer-implemented method of claim 1, wherein the age segments in the plurality of building block derivatives are 1 year segments from age 20 to age 95. ### Claim 8 (depends on 1) The computer-implemented method of claim 1, further comprising segmenting according to gender, thereby creating a plurality of building block mortality derivatives each hedging risk for a specified age range and a specified gender; wherein the payout for a building block mortality derivative correlates to the performance of the mortality rate related index corresponding to the age range and gender of the mortality derivative; thereby providing a plurality of age-segmented and gender-segmented mortality derivatives to hedge risk. ### Claim 9 (depends on 1) The computer-implemented method of claim 1, further comprising segmenting according to one or more of geography, lifestyle, health, and socioeconomic status. ### Claim 10 (depends on 1) The computer-implemented method of claim 1, wherein at least one of a price and the payout is structured based on a mortality rate model. ### Claim 11 (depends on 1) The computer-implemented method of claim 1, wherein at least one of the price and the payout is structured based on a non-deterministic, stochastic mortality model. ### Claim 12 (depends on 1) The computer-implemented method of claim 1, wherein at least one of a price and the payout is structured based on a non-deterministic, stochastic mortality model, that is a probabilistic function of gender (M/F), age (x), and time in history (t). ### Claim 13 (depends on 1) The computer-implemented method of claim 1, wherein the mortality rate related index is determined by published general population mortality rate data. ### Claim 14 (depends on 1) The computer-implemented method of claim 1, wherein the mortality rate related index is determined by published general population mortality rate data segmented by age and gender. ### Claim 15 (depends on 1) The computer-implemented method of claim 1, wherein the plurality of building block mortality derivatives comprise longevity risk mortality derivatives. ### Claim 16 (depends on 1) The computer-implemented method of claim 1, wherein the plurality of building block mortality derivatives comprise mortality risk mortality derivatives. ### Claim 17 (depends on 1) The computer-implemented method of claim 1, wherein the plurality of building block mortality derivatives comprise longevity risk mortality derivatives and mortality risk mortality derivatives. ### Claim 18 (depends on 1) The computer-implemented method of claim 1, wherein the plurality of building block mortality derivatives comprise longevity risk bond mortality derivatives. ### Claim 19 (depends on 1) The computer-implemented method of claim 1, wherein the plurality of building block mortality derivatives comprise longevity risk bond mortality derivatives wherein at least one of a principal repayment and coupon payment is dependent on the mortality index. ### Claim 20 (depends on 1) The computer-implemented method of claim 1, wherein the plurality of building block mortality derivatives comprise longevity risk option mortality derivative providing for a payout when the mortality-related index exceeds, meets, or falls below a threshold. ### Claim 21 (depends on 1) The computer-implemented method of claim 1, wherein the plurality of building block mortality derivatives include one or more of longevity risk bond mortality derivatives, longevity risk option mortality derivatives, longevity risk swap mortality derivatives, and longevity risk forward mortality derivatives. ### Claim 22 (depends on 1) The computer-implemented method of claim 1, wherein the plurality of building block mortality derivatives comprise include one or more of mortality risk bond mortality derivatives, mortality risk option mortality derivatives, mortality risk swap mortality derivatives, and mortality risk forward mortality derivatives. ### Claim 23 A computer-implemented method for establishing a plurality of building block mortality derivatives that can be used to hedge on mortality risk or longevity risk, comprising: establishing a plurality of age ranges corresponding to a mortality rate model, wherein the mortality rate model is based on the probability of mortality q=f(g, x, t), where g is gender (M/F), x is age, and t is time; establishing a mortality rate related index to be applied to building block derivatives; establishing a payout based on the performance of the mortality rate related index; and creating a plurality of building block mortality derivatives each hedging risk for a specified age range and gender; wherein the payout for a building block mortality derivative correlates to the performance of the mortality rate related index corresponding to the age range and gender of the mortality derivative; thereby providing a plurality of age-segmented, gender-specific mortality derivatives to hedge risk. ### Claim 24 (depends on 23) The computer-implemented method of claim 23, wherein each building block derivative provides a hedge against the variability of the mortality performance compared to the expected performance for that age segment/gender combination. ### Claim 25 (depends on 23) The computer-implemented method of claim 23, wherein the mortality rate related index is based in part on q. ### Claim 26 (depends on 23) The computer-implemented method of claim 23, wherein the mortality rate related index is based in part on the performance of q compared to actual measured mortality rates. ### Claim 27 (depends on 23) The computer-implemented method of claim 23, wherein the mortality rate related index is based on the mortality index rate expressed as: ### Claim 28 (depends on 23) The computer-implemented method of claim 23, further comprising: selecting a plurality of building block mortality derivatives that correspond to the mortality risk profile of a mortality portfolio; providing said selected plurality of building block mortality derivatives to the holder of the mortality portfolio; thereby providing a matched mortality hedge to the mortality portfolio using standardized derivative building blocks. ### Claim 29 (depends on 23) The computer-implemented method of claim 23, further comprising: selecting a plurality of building block mortality derivatives that correspond to the longevity risk profile of a longevity portfolio; providing said selected plurality of building block mortality derivatives to the holder of the longevity portfolio; thereby providing a matched longevity hedge to the longevity portfolio using standardized derivative building blocks. ### Claim 30 (depends on 23) The computer-implemented method of claim 23, further comprising: selecting a first plurality of building block mortality derivatives that correspond to the longevity risk profile of longevity instruments in a portfolio having longevity instruments and mortality instruments; selecting a second plurality of building block mortality derivatives that correspond to the mortality risk profile of mortality instruments in the portfolio having longevity instruments and mortality instruments; providing said selected plurality of building block mortality derivatives to the holder of the portfolio; thereby providing a matched hedge to the portfolio having longevity instruments and mortality instruments using standardized derivative building blocks. ### Claim 31 (depends on 23) The computer-implemented method of claim 23, further comprising: establishing a secondary market for trading of building block mortality derivatives. ### Claim 32 (depends on 23) The computer-implemented method of claim 23, further wherein the building block derivatives are established to correspond to various q segments. ### Claim 33 (depends on 23) The computer-implemented method of claim 23, wherein the mortality based index rate is based on the Mortality Index Ratet=qt, where qt=amΣbxqm,x,t+afΣbxqf,x,t am and af are Gender Weights, bx are the Age Group Weights, qm,x,t is the Mortality Rate for males in Age Group x in Measurement Period t qf,x,t is the Mortality Rate for females in Age Group x in Measurement Period t. ### Claim 34 (depends on 23) The computer implemented method of claim 23, wherein the mortality rate model is further a function of least one of geography, socioeconomic status, health, and lifestyle, and further wherein the payout for a building block mortality derivative correlates to the performance of the mortality rate related index corresponding to the age range, gender, and said at least one further variable. ### Claim 35 A computer-implemented system for establishing a plurality of building block mortality derivatives that can be used to hedge against or speculate on mortality risk, comprising: a computer readable media for storing a plurality of age ranges corresponding to a mortality rate model; a processor programmed with code executable for determining a mortality rate related index to be applied to building block derivatives; said processor programmed to establish at least one of a price and a payout based on at least one of the mortality rate model and the performance of the mortality rate related index; and a computer readable media for storing data of a plurality of building block mortality derivatives established in order to hedge risk for a specified age range; wherein the payout for a building block mortality derivative correlates to the performance of the mortality rate related index corresponding to the age range of the mortality derivative; thereby providing a plurality of age-segmented mortality derivatives to hedge risk.