Longevity Risk Management and the Development of a Value-Based Longevity Index

Yang Chang and Michael Sherris
Additional contact information
Yang Chang: School of Risk and Actuarial Studies and CEPAR, UNSW Business School, Sydney 2052, Australia
Michael Sherris: School of Risk and Actuarial Studies and CEPAR, UNSW Business School, Sydney 2052, Australia

Risks, 2018, vol. 6, issue 1, 1-20

Abstract: The design and development of post-retirement income products require the assessment of longevity risk, as well as a basis for hedging these risks. Most indices for longevity risk are age-period based. We develop and assess a cohort-based value index for life insurers and pension funds to manage longevity risk. There are two innovations in the development of this index. Firstly, the underlying variables of most existing longevity indices are based on mortality experience only. The value index is based on the present value of future cash flow obligations, capturing all the risks in retirement income products. We use the index to manage both longevity risk and interest rate risk. Secondly, we capture historical dependencies between ages and cohorts with a cohort-based stochastic mortality model. We achieve this by introducing age-dependent model parameters. With our mortality model, we obtain realistic cohort correlation structures and improve the fitting performance, particularly for very old ages.

Keywords: retirement income risk; cohort mortality; value index; mortality risk; interest rate risk; hedge efficiency (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.mdpi.com/2227-9091/6/1/10/pdf (application/pdf)
https://www.mdpi.com/2227-9091/6/1/10/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:6:y:2018:i:1:p:10-:d:131400

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().