Longevity Risk Management and the Development of a Value-Based Longevity Index
The design and development of post-retirement income products require the assessment of longevity risk, as well as a basis for hedging these risks. Most indices for longevity risk are age-period based. We develop and assess a cohort-based value index for life insurers and pension funds to manage lon...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2018-02-01
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| Series: | Risks |
| Subjects: | |
| Online Access: | http://www.mdpi.com/2227-9091/6/1/10 |
| _version_ | 1819292029738287104 |
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| author | Yang Chang Michael Sherris |
| author_facet | Yang Chang Michael Sherris |
| author_sort | Yang Chang |
| collection | DOAJ |
| description | The design and development of post-retirement income products require the assessment of longevity risk, as well as a basis for hedging these risks. Most indices for longevity risk are age-period based. We develop and assess a cohort-based value index for life insurers and pension funds to manage longevity risk. There are two innovations in the development of this index. Firstly, the underlying variables of most existing longevity indices are based on mortality experience only. The value index is based on the present value of future cash flow obligations, capturing all the risks in retirement income products. We use the index to manage both longevity risk and interest rate risk. Secondly, we capture historical dependencies between ages and cohorts with a cohort-based stochastic mortality model. We achieve this by introducing age-dependent model parameters. With our mortality model, we obtain realistic cohort correlation structures and improve the fitting performance, particularly for very old ages. |
| first_indexed | 2024-12-24T03:48:02Z |
| format | Article |
| id | doaj.art-d849e27f8e6946e49d2d3ce6de02803e |
| institution | Directory Open Access Journal |
| issn | 2227-9091 |
| language | English |
| last_indexed | 2024-12-24T03:48:02Z |
| publishDate | 2018-02-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj.art-d849e27f8e6946e49d2d3ce6de02803e2022-12-21T17:16:39ZengMDPI AGRisks2227-90912018-02-01611010.3390/risks6010010risks6010010Longevity Risk Management and the Development of a Value-Based Longevity IndexYang Chang0Michael Sherris1School of Risk and Actuarial Studies and CEPAR, UNSW Business School, Sydney 2052, AustraliaSchool of Risk and Actuarial Studies and CEPAR, UNSW Business School, Sydney 2052, AustraliaThe design and development of post-retirement income products require the assessment of longevity risk, as well as a basis for hedging these risks. Most indices for longevity risk are age-period based. We develop and assess a cohort-based value index for life insurers and pension funds to manage longevity risk. There are two innovations in the development of this index. Firstly, the underlying variables of most existing longevity indices are based on mortality experience only. The value index is based on the present value of future cash flow obligations, capturing all the risks in retirement income products. We use the index to manage both longevity risk and interest rate risk. Secondly, we capture historical dependencies between ages and cohorts with a cohort-based stochastic mortality model. We achieve this by introducing age-dependent model parameters. With our mortality model, we obtain realistic cohort correlation structures and improve the fitting performance, particularly for very old ages.http://www.mdpi.com/2227-9091/6/1/10retirement income riskcohort mortalityvalue indexmortality riskinterest rate riskhedge efficiency |
| spellingShingle | Yang Chang Michael Sherris Longevity Risk Management and the Development of a Value-Based Longevity Index Risks retirement income risk cohort mortality value index mortality risk interest rate risk hedge efficiency |
| title | Longevity Risk Management and the Development of a Value-Based Longevity Index |
| title_full | Longevity Risk Management and the Development of a Value-Based Longevity Index |
| title_fullStr | Longevity Risk Management and the Development of a Value-Based Longevity Index |
| title_full_unstemmed | Longevity Risk Management and the Development of a Value-Based Longevity Index |
| title_short | Longevity Risk Management and the Development of a Value-Based Longevity Index |
| title_sort | longevity risk management and the development of a value based longevity index |
| topic | retirement income risk cohort mortality value index mortality risk interest rate risk hedge efficiency |
| url | http://www.mdpi.com/2227-9091/6/1/10 |
| work_keys_str_mv | AT yangchang longevityriskmanagementandthedevelopmentofavaluebasedlongevityindex AT michaelsherris longevityriskmanagementandthedevelopmentofavaluebasedlongevityindex |