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Single and cross-generation natural hedging of longevity and financial risk

Elisa Luciano (), Luca Regis () and Elena Vigna

No 257, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: The paper provides natural hedging strategies among death benefits and annuities written on a single and on different generations. It obtains closed-form Delta and Gamma hedges, in the presence of both longevity and interest rate risk. We present an application to UK data on survivorship and bond dynamics. We first compare longevity and financial risk exposures: Deltas and Gammas for longevity risk are greater in absolute value than the corresponding sensitivities for interest rate risk. We then calculate the optimal hedges, both within and across generations. Our results apply to both asset and asset-liability management.

Keywords: Longevity risk; Interest rate risk; Delta-Gamma hedging; Natural hedging; Cross-generation hedging. (search for similar items in EconPapers)
JEL-codes: C02 G22 G32 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2012
New Economics Papers: this item is included in nep-rmg
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Related works:
Journal Article: Single- and Cross-Generation Natural Hedging of Longevity and Financial Risk (2017) Downloads
Working Paper: Single and cross-generation natural hedging of longevity and financial risk (2012) Downloads
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