Centro de Documentacion de Fundación MAPFRE - Downside risk management of a defined benefit plan considering longevity basis risk

Notes: Sumario: To control downside risk of a defined benefit pension plan arising from unexpected mortality improvements and severe market turbulence, this article proposes an optimization model by imposing two conditional value at risk constraints to control tail risks of pension funding status and total pension costs. With this setup, we further examine two longevity risk hedging strategies subject to basis risk. While the existing literature suggests that the excess-risk hedging strategy is more attractive than the ground-up hedging strategy as the latter is more capital intensive and expensive, our numerical examples show that the excess-risk hedging strategy is much more vulnerable to longevity basis risk, which limits its applications for pension longevity risk management. Hence, our findings provide important insight on the effect of basis risk on longevity hedging strategies.Related records: En: North American actuarial journal. - Schaumburg : Society of Actuaries, 1997- = ISSN 1092-0277. - 03/02/2014 Tomo 18 Número 1 - 2014 , p. 68-86Materia / lugar / evento: Control de riesgos Planes de pensiones Gerencia de riesgos Mortalidad Longevidad Cálculo actuarial Matemática del seguro Otros autores: Lin, Yijia
Other categories: 6

Rights: In Copyright (InC)

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