Centro de Documentacion de Fundación MAPFRE - Robust mean-variance hedging of longevity risk

MAP20170015123

Robust mean-variance hedging of longevity risk / Hong Li, Anja De Waegenaere, Bertrand Melenberg

Sumario: Parameter uncertainty and model misspecification can have a significant impact on the performance of hedging strategies for longevity risk. To mitigate this lack of robustness,wepropose an approach in which the optimal hedge is determined by optimizing the worst-case value of the objective function with respect to a set of plausible probability distributions. In the empirical analysis, we consider an insurer who hedges longevity risk using a longevity bond, and we compare the worst-case (robust) optimal hedges with the classical optimal hedges in which parameter uncertainty and model misspecification are ignored. We find that unless the risk premium on the bond is close to zero, the robust optimal hedge is significantly less sensitive to variations in the underlying probability distribution. Moreover, the robust optimal hedge on average outperforms the nominal optimal hedge unless the probability distribution used by the nominal hedger is close to the true distribution.

En: The Journal of risk and insurance. - Nueva York : The American Risk and Insurance Association, 1964- = ISSN 0022-4367. - 03/04/2017 Volumen 84 Número S1 - abril 2017 , p. 459-475

1. Gerencia de riesgos . 2. Longevidad . 3. Cálculo de probabilidades . I. Título.