Time-consistent meanvariance hedging of longevity risk : Effect of cointegration

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      <subfield code="a">Time-consistent meanvariance hedging of longevity risk</subfield>
      <subfield code="b">: Effect of cointegration</subfield>
      <subfield code="c">Tat Wing Wong, Mei Choi Chiu, Hoi Ying Wong</subfield>
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      <subfield code="a">This paper investigates the time-consistent dynamic meanvariance hedging of longevity risk with a longevity security contingent on a mortality index or the national mortality. Using an HJB framework, we solve the hedging problem in which insurance liabilities follow a doubly stochastic Poisson process with an intensity rate that is correlated and cointegrated to the index mortality rate. The derived closed-form optimal hedging policy articulates the important role of cointegration in longevity hedging. We show numerically that a time-consistent hedging policy is a smoother function in time when compared with its time-inconsistent counterpart.

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      <subfield code="g">05/05/2014 Volumen 56 Número 1 - mayo 2014 , p. 56-67</subfield>
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