Dollars and Jens
Tuesday, December 18, 2007
QxX longevity index
Goldman Sachs's new longevity index. A pool of 46,290 people age 65 and over; the second Thursday of each month it will be announced how many of them are still alive. Swaps will be traded in which, for the duration of some term, party A pays to party B $X each month per person who was alive at the beginning of the month, and B pays A $Y per person who died in that month; the market ratio of X/Y is reported in annualized terms. For example, if 45,000 people are alive at the beginning of the month, and 1,000 of them die during the month, the net payment is 45000*X - 1000*Y; if the contract is at "400bp" as suggested at the top of that page, then X/Y is 400bp per year or (1/300)/month, the protection buyer pays a net of 15000*X.

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