Centro de Documentacion de Fundación MAPFRE - Dynarnic longevity hedging in the presence of population basis risk : a feasibility analysis from technical and economic perspectives

MAP20170015109

Dynarnic longevity hedging in the presence of population basis risk : a feasibility analysis from technical and economic perspectives / Kenneth Q. Zhou, Johnny Siu-Hang Li

Sumario: In this article, we study the feasibility of dynamic longevity hedging with standardized securities that are linked to broad-based mortality indexes. On the technical front, we generalize the dynamic delta hedging strategy developed by Cairns (2011) to incorporate the situation when population basis risk exists. On the economic front, we discuss the potential financial benefits of an index-based hedge over a bespoke risk transfer. By considering data from a large group of national populations, we find evidence supporting the diversifiability of population basis risk. We further propose a customized surplus swapexecuted between a hedger and reinsurerto utilize the diversifiability. As standardized instruments demand less illiquidity premium, a combination of a dynamic index-based hedge and the proposed customized surplus swap may possibly be a more economical (and equally effective) alternative to a bespoke risk transfer.

En: The Journal of risk and insurance. - Nueva York : The American Risk and Insurance Association, 1964- = ISSN 0022-4367. - 03/04/2017 Volumen 84 Número S1 - abril 2017 , p. 417-437

1. Longevidad . 2. Gerencia de riesgos . 3. Cálculo actuarial . I. Title.