A Cautionary note on natural hedging of longevity risk

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      <subfield code="a">A Cautionary note on natural hedging of longevity risk</subfield>
      <subfield code="c">Nan Zhu, Daniel Bauer</subfield>
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      <subfield code="a">In this article, we examine the so-called natural hedging approach for life insurers to internally manage their longevity risk exposure by adjusting their insurance portfolio. In particular, unlike the existing literature, we also consider a nonparametric mortality forecasting model that avoids the assumption that all mortality rates are driven by the same factor(s).Our primary finding is that higher order variations in mortality rates may considerably affect the performance of natural hedging. More precisely, although results based on a parametric single factor modelin line with the existing literatureimply that almost all longevity risk can be hedged, results are far less encouraging for the nonparametric mortality model. Our finding is supported by robustness tests based on alternative mortality models.</subfield>
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      <subfield code="d">Schaumburg : Society of Actuaries, 1997-</subfield>
      <subfield code="x">1092-0277</subfield>
      <subfield code="g">03/02/2014 Tomo 18 Número 1 - 2014 </subfield>
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