Dynamic hedging of longevity risk : the effect of trading frequency

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      <subfield code="a">Li, Hong</subfield>
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      <subfield code="a">Dynamic hedging of longevity risk</subfield>
      <subfield code="b">: the effect of trading frequency</subfield>
      <subfield code="c">Hong Li</subfield>
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      <subfield code="a">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.</subfield>
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      <subfield code="a">Pensiones</subfield>
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      <subfield code="a">Longevidad</subfield>
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      <subfield code="a">Evaluación de riesgos</subfield>
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      <subfield code="d">Belgium : ASTIN and AFIR Sections of the International Actuarial Association</subfield>
      <subfield code="x">0515-0361</subfield>
      <subfield code="g">01/01/2018 Volumen 48 Número 1 - enero 2018 , p. 197-232</subfield>
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