 Optimal longevity risk transfer under asymmetric informationAn Chen, Hong Li and Mark B. Schultze Economic Modelling, 2023, vol. 120, issue C Abstract: Due to the increasing life expectancy, pension funds, life annuity providers, and reinsurance companies find their longevity risk substantially growing. Correspondingly, various longevity risk-transferring solutions have been developed. Information asymmetry, i.e., general capital market investors have less knowledge of longevity risk than the risk exposure holders and are worried they will be sold a ‘lemon’, has been a key obstacle to developing a longevity-linked capital market. Using a principal–agent model, we study the optimal transfer of longevity risk between capital market investors and longevity risk exposure holders under information asymmetry. With indemnity longevity swaps as an example, analytical solutions to the optimal incentive-compatible contracts are derived in both a monopolistic and a competitive market setting. We find that information asymmetry could lead to market collapse. However, when the market exists, properly addressing information asymmetry could substantially benefit the market participants. Keywords: Longevity risk; Adverse selection; Longevity swap; Economic pricing; Principal–agent-model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:120:y:2023:i:c:s0264999322004163 DOI: 10.1016/j.econmod.2022.106179 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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