TY - JOUR T1 - Fair Value Measurement in the Life Settlement Market JF - The Journal of Fixed Income DO - 10.3905/jfi.2020.1.084 SP - jfi.2020.1.084 AU - Alexander Braun AU - Jiahua Xu Y1 - 2020/01/22 UR - https://pm-research.com/content/early/2020/01/22/jfi.2020.1.084.abstract N2 - IFRS 13 and the AIFMD require assets to be held at fair value. Life settlement prices are commonly determined by present value calculus. Yet, the asset class lacks an established approach for the determination of adequate discount rates. We estimate historical yield spreads used for pricing based on 2,863 transactions that occurred between 2011 and 2016. We then explain their cross section through hedonic regression methodology. Out-of-sample results indicate that market-consistent life settlement prices can be conclusively predicted using discount rates generated by our model.TOPICS: Fixed income and structured finance, risk management, performance measurementKey Findings• The authors provide an explanation of historically-observed yield spreads for life settlements.• They develop a parsimonious model for the prediction of risk-adjusted discount rates in the life settlements market.• The results demonstrate that life settlement assets can be marked to market based on observable inputs. ER -