A Two-Population Mortality Model to Assess Longevity Basis Risk
Küçük Resim Yok
Tarih
2021
Yazarlar
Dergi Başlığı
Dergi ISSN
Cilt Başlığı
Yayıncı
Mdpi
Erişim Hakkı
info:eu-repo/semantics/openAccess
Özet
Index-based hedging solutions are used to transfer the longevity risk to the capital markets. However, mismatches between the liability of the hedger and the hedging instrument cause longevity basis risk. Therefore, an appropriate two-population model to measure and assess longevity basis risk is required. In this paper, we aim to construct a two-population mortality model to provide an effective hedge against the basis risk. The reference population is modelled by using the Lee-Carter model with the renewal process and exponential jumps, and the dynamics of the book population are specified. The analysis based on the U.K. mortality data indicate that the proposed model for the reference population and the common age effect model for the book population provide a better fit compared to the other models considered in the paper. Different two-population models are used to investigate the impact of sampling risk on the index-based hedge, as well as to analyse the risk reduction regarding hedge effectiveness. The results show that the proposed model provides a significant risk reduction when mortality jumps and sampling risk are taken into account.
Açıklama
Anahtar Kelimeler
longevity basis risk, mortality jumps, sampling risk, two-population mortality model
Kaynak
Risks
WoS Q Değeri
N/A
Scopus Q Değeri
Q2
Cilt
9
Sayı
2
