Understanding, Modeling and Managing Longevity Risk: Key Issues and Main Challenges

Pauline Barrieu (), Harry Bensusan, Nicole El Karoui, Caroline Hillairet (), Stéphane Loisel, Claudia Ravanelli () and Yahia Salhi ()
Additional contact information
Pauline Barrieu: Department of Statistics - LSE - London School of Economics and Political Science
Harry Bensusan: CMAP - Centre de Mathématiques Appliquées de l'Ecole polytechnique - Inria - Institut National de Recherche en Informatique et en Automatique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique
Nicole El Karoui: CMAP - Centre de Mathématiques Appliquées de l'Ecole polytechnique - Inria - Institut National de Recherche en Informatique et en Automatique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique
Caroline Hillairet: CMAP - Centre de Mathématiques Appliquées de l'Ecole polytechnique - Inria - Institut National de Recherche en Informatique et en Automatique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique
Claudia Ravanelli: Swiss Financial Institute - EPFL - Ecole Polytechnique Fédérale de Lausanne

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Abstract: This article investigates the latest developments in longevity risk modelling, and explores the key risk management challenges for both the financial and insurance industries. The article discusses key definitions that are crucial for the enhancement of the way longevity risk is understood; providing a global view of the practical issues for longevity-linked insurance and pension products that have evolved concurrently with the steady increase in life expectancy since 1960s. In addition, the article frames the recent and forthcoming developments that are expected to action industry-wide changes as more effective regulation, designed to better assess and efficiently manage inherited risks, is adopted. Simultaneously, the evolution of longevity is intensifying the need for capital markets to be used to manage and transfer the risk through what are known as Insurance-Linked Securities (ILS). Thus, the article will examine the emerging scenarios, and will finally highlight some important potential developments for longevity risk management from a financial perspective with reference to the most relevant modelling and pricing practices in the banking industry.

Keywords: Longevity Risk; securitization; risk transfer; incomplete market; life insurance; stochastic mortality; pensions; long term interest rate; regulation; population dynamics (search for similar items in EconPapers)
Date: 2012
Note: View the original document on HAL open archive server: https://hal.science/hal-00417800v2
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Citations: View citations in EconPapers (46)

Published in Scandinavian Actuarial Journal, 2012, 2012 (3), pp.203-231

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Related works:
Working Paper: Understanding, Modeling and Managing Longevity Risk: Key Issues and Main Challenges (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00417800

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