A Multivariate Model of Strategic Asset Allocation with Longevity Risk

Emilio Bisetti, Carlo Favero (), Giacomo Nocera and Claudio Tebaldi ()

No 503, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: This paper proposes a framework to evaluate the impact of longevity-linked securities on the risk-return trade-off for traditional portfolios. Generalized unexpected raise in life expectancy is a source of aggregate risk in the insurance sector balance sheets. Longevity-linked securities are a natural instrument to reallocate these risks by making them tradable in the financial market. This paper extends the strategic asset allocation model of (Campbell Viceira 2005) to include a longevity-linked investment in addition to equity and fixed income securities and describe the resulting term structure of risk-return trade-offs. The model highlights an unexpected predictability pattern of the survival probability estimates and gives an empirical valuation of the market price of longevity risk based on the LeeCarter(1992) mortality model and on the time series of prices for standardized annuities publicly offered by US insurance companies. Keywords: Longevity Risk, Strategic Asset Allocation JEL Classification: [G11, G12, G22]

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.unibocconi.it/igier/igi/wp/2013/503.pdf (application/pdf)

Related works:
Journal Article: A Multivariate Model of Strategic Asset Allocation with Longevity Risk (2017)
Working Paper: A Multivariate Model of Strategic Asset Allocation with Longevity Risk (2017)
Working Paper: A Multivariate Model of Strategic Asset Allocation with Longevity Risk (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:igi:igierp:503

Ordering information: This working paper can be ordered from
https://repec.unibocconi.it/igier/igi/

Access Statistics for this paper

More papers in Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University via Rontgen, 1 - 20136 Milano (Italy).
Bibliographic data for series maintained by ().