Efficient versus inefficient hedging strategies in the presence of financial and longevity (value at) risk

Elisa Luciano and Luca Regis ()

Insurance: Mathematics and Economics, 2014, vol. 55, issue C, 68-77

Abstract: This paper provides a closed-form Value-at-Risk (VaR) for the net exposure of an annuity provider, taking into account both mortality and interest-rate risk, on both assets and liabilities. It builds a classical risk-return frontier and shows that hedging strategies–such as the transfer of longevity risk–may increase the overall risk while decreasing expected returns, thus resulting in inefficient outcomes. Once calibrated to the 2010 UK longevity and bond market, the model gives conditions under which hedging policies become inefficient.

Keywords: VaR for life insurance; Inefficient longevity risk transfer; Interest-rate with longevity risk (search for similar items in EconPapers)
JEL-codes: G22 G32 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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Working Paper: Efficient versus inefficient hedging strategies in the presence of financial and longevity (value at) risk (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:55:y:2014:i:c:p:68-77

DOI: 10.1016/j.insmatheco.2013.12.002

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