Dynamic hedging of longevity risk : the effect of trading frequency

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<title>Dynamic hedging of longevity risk</title>
<subTitle>: the effect of trading frequency</subTitle>
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<genre authority="marcgt">periodical</genre>
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<dateIssued encoding="marc">2018</dateIssued>
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<abstract displayLabel="Summary">This paper investigates dynamic hedging strategies for pension and annuity liabilities that are exposed to longevity risk. In particular, we consider a hedger who wishes to minimize the variance of her hedging error using index-based longevity-linked derivatives. To cope with the fact that liquidity of longevitylinked derivatives is still limited, we consider a liquidity constrained case where the hedger can only trade longevity-linked derivatives at a frequency lower than other assets. Time-consistent, closed-form solutions of optimal hedging strategies are obtained under a forward mortality framework. In the numerical illustration, we show that lowering the trading of the longevity-linked derivatives to a 2-year frequency only leads to a slight loss of the hedging performance. Moreover, even when the longevity-linked derivatives are traded at a very low (5-year) frequency, dynamic hedging strategies still significantly outperform the static one.</abstract>
<note type="statement of responsibility">Hong Li</note>
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<topic>Pensiones</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080555016">
<topic>Longevidad</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080601522">
<topic>Evaluación de riesgos</topic>
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<topic>Modelos actuariales</topic>
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<topic>Valoración de riesgos</topic>
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<title>Astin bulletin</title>
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<publisher>Belgium : ASTIN and AFIR Sections of the International Actuarial Association</publisher>
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<identifier type="issn">0515-0361</identifier>
<identifier type="local">MAP20077000420</identifier>
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<text>01/01/2018 Volumen 48 Número 1 - enero 2018 , p. 197-232</text>
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