Fixed income securities with a zero Macaulay duration: senior life settlements

Carlos E. Ortiz, Charles A. Stone and Anne Zissu

Applied Financial Economics Letters, 2008, vol. 4, issue 3, 205-207

Abstract: Senior life settlements belong to the family of fixed income securities, however, because of the negative stream of cash flows generated by the payment of yearly premia p and the only one positive lump sum received at death of the senior life settler, contrary to the other fixed income securities, senior life settlements, under certain conditions, can achieve a zero Macaulay duration. Investors interested in a hedged portfolio against interest risk could purchase such life settlements. We develop the conditions for which a zero Macaulay duration is obtained.

Date: 2008
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DOI: 10.1080/17446540701604291

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