Artikel
Managing systematic mortality risk in life annuities: An application of longevity derivatives
This paper assesses the hedge effectiveness of an index-based longevity swap and a longevity cap for a life annuity portfolio. Although longevity swaps are a natural instrument for hedging longevity risk, derivatives with non-linear pay-offs, such as longevity caps, provide more effective downside protection. A tractable stochastic mortality model with age dependent drift and volatility is developed and analytical formulae for prices of longevity derivatives are derived. The model is calibrated using Australian mortality data. The hedging of the life annuity portfolio is comprehensively assessed for a range of assumptions for the longevity risk premium, the term to maturity of the hedging instruments, as well as the size of the underlying annuity portfolio. The results compare the risk management benefits and costs of longevity derivatives with linear and nonlinear payoff structures.
- Language
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Englisch
- Bibliographic citation
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Journal: Risks ; ISSN: 2227-9091 ; Volume: 7 ; Year: 2019 ; Issue: 1 ; Pages: 1-25 ; Basel: MDPI
- Classification
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Wirtschaft
- Subject
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longevity risk management
longevity swaps
longevity options
hedge effectiveness
- Event
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Geistige Schöpfung
- (who)
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Fung, Man Chung
Ignatieva, Ekaterina
Sherris, Michael
- Event
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Veröffentlichung
- (who)
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MDPI
- (where)
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Basel
- (when)
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2019
- DOI
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doi:10.3390/risks7010002
- Handle
- Last update
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10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Artikel
Associated
- Fung, Man Chung
- Ignatieva, Ekaterina
- Sherris, Michael
- MDPI
Time of origin
- 2019
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Nonparametric estimation of extreme quantiles with an application to longevity risk
Pricing of longevity derivatives and cost of capital
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Longevity risk management and the development of a value-based longevity index
Longevity risk measurement of life annuity products
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Can pension funds partially manage longevity risk by investing in a longevity megafund?
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