TY  - RPRT
UR  - http://www.carloalberto.org/assets/working-papers/no.403.pdf
KW  - longevity risk
KW  -  static vs. dynamic hedging
KW  -  longevity swaps
KW  -  longevity bonds    JEL classification G22
KW  -  G32
N2  - 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%.
M1  - working_paper
AV  - public
TI  - Static versus dynamic longevity­ risk hedging
ID  - eprints2635
Y1  - 2015///
A1  - De Rosa, Clemente
A1  - Luciano, Elisa
A1  - Regis, Luca
PB  - Collegio Carlo Alberto
EP  - 19
SN  - 2279-9362
ER  -