Managing mortality risk with longevity bonds when mortality rates are cointegrated

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      <subfield code="a">Managing mortality risk with longevity bonds when mortality rates are cointegrated</subfield>
      <subfield code="c">Tat Wing Wong, Mei Choi Chiu, Hoi Ying Wong</subfield>
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      <subfield code="a">This article investigates the dynamic mean-variance hedging problem of an insurer using longevity bonds (or longevity swaps). Insurance liabilities are modeled using a doubly stochastic compound Poisson process in which the mortality rate is correlated and cointegrated with the index mortality rate. We solve this dynamic hedging problem using a theory of forward-backward stochastic differential equations. Our theory shows that cointegration materially affects the optimal hedging strategy beyond correlation. The cointegration effect is independent of the risk preference of the insurer. Explicit solutions for the optimal hedging strategy are derived for cointegrated stochastic mortality models with both constant and state-dependent volatilities.</subfield>
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      <subfield code="a">Mortalidad</subfield>
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      <subfield code="a">Longevidad</subfield>
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      <subfield code="a">Choi Chiu, Mei</subfield>
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      <subfield code="t">The Journal of risk and insurance</subfield>
      <subfield code="d">Nueva York : The American Risk and Insurance Association, 1964-</subfield>
      <subfield code="x">0022-4367</subfield>
      <subfield code="g">04/09/2017 Volumen 84 Número 3 - septiembre 2017 , p. 987-1023</subfield>
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