%I IMT Institute for Advanced Studies Lucca
%N 21
%T Natural Delta Gamma Hedging of Longevity and Interest Rate Risk. ICER Working Paper
%A Elisa Luciano
%A Luca Regis
%A Elena Vigna
%X The paper presents closed-form Delta and Gamma hedges for annuities and death assurances, in the presence of both longevity and interest-rate risk. Longevity risk is modeled through an extension of the classical Gompertz law, while interest rate risk is modeled via an Hull-and-White process. We theoretically provide natural hedging strategies, considering also contracts written on different generations. We provide a UK-population and bond-market calibrated example. We compute longevity exposures and explicitly calculate Delta-Gamma hedges. Re-insurance is needed in order to set-up portfolios which are Delta-Gamma neutral to both longevity and interest-rate risk.
%D 2011
%L eprints1801