Applications of mortality durations and convexities in natural hedges

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<title>Applications of mortality durations and convexities in natural hedges</title>
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<name type="personal" usage="primary">
<namePart>Lin, Tzuling</namePart>
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<name type="personal">
<namePart>Tsai, Cary Chi-Liang</namePart>
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<abstract>Defining and deriving the mortality durations and convexities of the prices of life insurance and annuity products with respect to an instantaneously proportional change and an instantaneously parallel shift, respectively, in µs (the forces of mortality), qs (the one-year death probabilities), ps (the one-year survival probabilities), ln?(µ)s, (q/p)s, and ln?(q/p)s, this article applies 24 proposed duration/convexity matching strategies classified into seven groups to determine the weights of two products in an insurance portfolio. The hedging performances of some qualified matching strategies selected as representatives are evaluated by comparing their Value at Risk (VaR) values and variance reduction ratios for a base scenario. We also test some specific scenarios for the population basis risk, model risk, volatility and jump risks, and interest rate risk to see the impacts on the matching strategies. Numerical examples show that some convexity matching strategies overall outperform the others in the VaR value and in the effectiveness of hedging both longevity and mortality risks for two kinds of insurance portfolios</abstract>
<note type="statement of responsibility">Tzuling Lin, Cary Chi-Liang Tsai</note>
<subject>
<topic>Matemática del seguro</topic>
</subject>
<subject>
<topic>Cálculo actuarial</topic>
</subject>
<subject>
<topic>Seguro de vida</topic>
</subject>
<subject>
<topic>Modelos predictivos</topic>
</subject>
<subject>
<topic>Esperanza de vida</topic>
</subject>
<subject>
<topic>Gerencia de riesgos</topic>
</subject>
<subject>
<topic>Análisis predictivos</topic>
</subject>
<subject>
<topic>Mortalidad</topic>
</subject>
<classification authority="">6</classification>
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<titleInfo>
<title>North American actuarial journal</title>
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<originInfo>
<publisher>Schaumburg : Society of Actuaries, 1997-</publisher>
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<identifier type="issn">1092-0277</identifier>
<identifier type="local">MAP20077000239</identifier>
<part>
<text>01/09/2014 Tomo 18 Número 3 - 2014 , p. 417-442</text>
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<recordCreationDate encoding="marc">141113</recordCreationDate>
<recordChangeDate encoding="iso8601">20141205140950.0</recordChangeDate>
<recordIdentifier source="MAP">MAP20140041879</recordIdentifier>
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