Partial splitting of longevity and financial risks: The longevity nominal choosing swaptions

Harry Bensusan, Nicole El Karoui, Stéphane Loisel and Yahia Salhi

Insurance: Mathematics and Economics, 2016, vol. 68, issue C, 61-72

Abstract: The previous attempts to launch liquid and standardized longevity derivatives in the market failed because banks do not seem to be ready to take longevity risk. Therefore, instead of trying to transfer longevity risk to investors, it could be interesting for financial institutions to propose interest rate hedges adapted to longevity portfolios, in the spirit of liability driven investments. In this paper, we introduce a new structured financial product: the so-called Longevity Nominal Chooser Swaption. Thanks to such a contract, insurers could keep pure longevity risk and transfer to financial markets a great part of interest rate risk underlying annuity portfolios.

Keywords: Pension funds; Longevity risk; Interest rate risk; Risk transfer; Longevity modeling; Hedge effectiveness (search for similar items in EconPapers)
Date: 2016
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Working Paper: Partial Splitting of Longevity and Financial Risks: The Longevity Nominal Choosing Swaptions (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:68:y:2016:i:c:p:61-72

DOI: 10.1016/j.insmatheco.2016.02.001

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