For annuity providers, longevity risk, i.e. the risk that future mortality trends differ from those anticipated, constitutes an important risk factor. In order to manage this risk, new financial products, so-called longevity derivatives, may be needed, even though a first attempt to issue a longevity bond in 2004 was not successful.
While different methods of how to price such securities have been proposed in recent literature, no consensus has been reached. This paper reviews, compares and comments on these different approaches. In particular, we use data from the United Kingdom to derive prices for the proposed first longevity bond and an alternative security design based on the different methods.