Forward Mortality Rates in Discrete Time II: Longevity Risk and Hedging Strategies

Andrew Hunt and David Blake

North American Actuarial Journal, 2021, vol. 25, issue S1, S508-S533

Abstract: Longevity risk has emerged as an important risk in the early 21st century for the providers of pension benefits and annuities. Any changes in the assumptions for future mortality rates can have a major financial impact on the valuation of these liabilities and motivates many of the longevity-linked securities that have been proposed to hedge this risk. Using the framework developed in Hunt and Blake (2020c), we investigate how these assumptions can change over a one-year period and the potential for hedging longevity risk in an illustrative annuity portfolio and find that relatively simple hedging strategies can significantly mitigate longevity risk over a one-year period.

Date: 2021
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DOI: 10.1080/10920277.2019.1649160

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