The paper provides natural hedging strategies for life insurance and annu- ities businesses written on a single or on different generations, in the presence of both longevity and interest-rate risks. We obtain closed-form sulutions for Delta and Gamma hedges against cohort-based longevity risk. We exploit the correlation between the mortality intensities of different generations and hedge the longevity risk of one cohort with products on other cohorts. An application with UK data on survivorship and bond dynamics shows that hedging is effective, even when rebalancing is infrequent.

Single- and Cross-Generation Natural Hedging of Longevity and Financial Risk

LUCIANO, Elisa;REGIS, Luca;VIGNA, Elena
2017

Abstract

The paper provides natural hedging strategies for life insurance and annu- ities businesses written on a single or on different generations, in the presence of both longevity and interest-rate risks. We obtain closed-form sulutions for Delta and Gamma hedges against cohort-based longevity risk. We exploit the correlation between the mortality intensities of different generations and hedge the longevity risk of one cohort with products on other cohorts. An application with UK data on survivorship and bond dynamics shows that hedging is effective, even when rebalancing is infrequent.
84
961
986
https://onlinelibrary.wiley.com/doi/epdf/10.1111/jori.12104
Longevity risk, interest-rate risk, Delta-Gamma hedging, natural hedging, cross-generation hedging.
Luciano, Elisa; Regis, Luca; Vigna, Elena
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/2318/137925
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