eprintid: 2978
rev_number: 7
eprint_status: archive
userid: 53
dir: disk0/00/00/29/78
datestamp: 2016-01-11 09:11:26
lastmod: 2016-02-26 15:56:01
status_changed: 2016-01-11 09:11:29
type: article
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: Basis Risk in Static versus Dynamic Longevity Risk Hedging
ispublished: inpress
subjects: HG
subjects: QA
divisions: EIC
full_text_status: none
keywords: Keywords: longevity risk, basis risk, static vs. dynamic hedging, longevity swaps, longevity bonds

JEL Classification: G22, G32
abstract: This paper provides a simple model for basis risk in a longevity framework, by separating common and idiosyncratic risk factors. Basis risk is captured by a single parameter, that measures the co-movement between the portfolio and the reference population. In this framework, the paper sets out 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 the presence of an analogous CIR process for interest rate risk.
date: 2016
publication: Scandinavian Actuarial Journal
refereed: TRUE
related_url_url: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2635401
related_url_type: org
funders: Global Risk Institute, Canada
citation:   De Rosa, Clemente and Luciano, Elisa and Regis, Luca  Basis Risk in Static versus Dynamic Longevity Risk Hedging.  Scandinavian Actuarial Journal.      (In Press)   (2016)