eprintid: 2635
rev_number: 11
eprint_status: archive
userid: 53
dir: disk0/00/00/26/35
datestamp: 2015-03-23 14:18:55
lastmod: 2015-03-23 14:20:30
status_changed: 2015-03-23 14:18:55
type: monograph
metadata_visibility: show
creators_name: De Rosa, Clemente
creators_name: Luciano, Elisa
creators_name: Regis, Luca
creators_id: 
creators_id: 
creators_id: luca.regis@imtlucca.it
title: Static versus dynamic longevity­ risk hedging
ispublished: pub
subjects: HB
subjects: QA
divisions: EIC
full_text_status: public
monograph_type: working_paper
keywords: longevity risk, static vs. dynamic hedging, longevity swaps, longevity bonds    JEL classification G22, G32
abstract: 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%.
date: 2015
number: 403
publisher: Collegio Carlo Alberto
pages: 19
institution: IMT Institute for Advanced Studies Lucca
issn: 2279-9362
official_url: http://www.carloalberto.org/assets/working-papers/no.403.pdf
citation:   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.      
document_url: http://eprints.imtlucca.it/2635/1/no.403.pdf