Mortality options: The point of view of an insurer

Maren Diane Schmeck and Hanspeter Schmidli

Insurance: Mathematics and Economics, 2021, vol. 96, issue C, 98-115

Abstract: In a discrete time framework we consider a life insurer who is able to buy a securitization product to hedge mortality. Two cohorts are considered: one underlying the securitization product and one for the portfolio of the insurer. In a general setting, we show that there exists a unique strategy that maximizes the insurer’s expected utility from terminal wealth. We then numerically illustrate our findings: in a Gompertz–Makeham model, where the realized survival probabilities can fluctuate moderately within an ε-corridor, as well as in a toy model for mortality shocks. In both examples the insurer can hedge longevity risk by trading in a survival bond.

Keywords: Mortality option; Optimal strategy; Maximal utility; Exponential utility; Longevity risk; Mortality shocks (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:96:y:2021:i:c:p:98-115

DOI: 10.1016/j.insmatheco.2020.10.009

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