relation: http://eprints.imtlucca.it/2635/
title: Static versus dynamic longevity­ risk hedging
creator: De Rosa, Clemente
creator: Luciano, Elisa
creator: Regis, Luca
subject: HB Economic Theory
subject: QA Mathematics
description: This paper provides the static, swap-based hedge for an annuity, and  compares it with the dynamic, delta-based hedge, achieved using longevity  bonds. We assume that the longevity intensity is distributed according to  a CIR-type process and provide closed-form derivatives prices and hedges,  also in presence of an analogous CIR process for interest rate risk. Our  calibration to 65-year old UK males shows that – once interest rate risk  is perfectly hedged – the average hedging error of the dynamic hedge  is moderate, and both its variance and the thickness of the tails of its  distribution are decreasing with the rebalancing frequency. The spread  over the basic "swap rate" which makes 99.5% quantile of the distribution  of the dynamic hedging error equal to the cost of the static hedge lies  between 0.01 and 0.04%.
publisher: Collegio Carlo Alberto
date: 2015
type: Working Paper
type: NonPeerReviewed
format: application/pdf
language: en
identifier: http://eprints.imtlucca.it/2635/1/no.403.pdf
identifier:   De Rosa, Clemente and Luciano, Elisa and Regis, Luca  Static versus dynamic longevity­ risk hedging.  Working Paper  #403/2015    Collegio Carlo Alberto    ISSN 2279-9362.      
relation: http://www.carloalberto.org/assets/working-papers/no.403.pdf