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Optimal longevity risk transfer and investment strategies. (English) Zbl 1465.91093

The paper focus on relevant problems affecting pension plans, because of market downturns, low interest rates, increasing life expectancies, and new pension accounting standards. One of the most burning issues arises from managing longevity risk. This study is specifically aimed at the management of longevity risk; for this purpose, the authors formalize a model that also takes into account factors such as asset investment risk and regulatory constraints. After introducing the mortality model and the market price of longevity risk, the authors derive the price of annuity contracts sold by an insurer and model the dynamics of its investments and surplus. Then, the optimization framework for longevity risk transfer with reinsurance is described. Moreover, having observed that the capital market offers better solutions to cope with longevity risk, in terms of capital availability, the authors introduce longevity risk management with capital market solutions. In particular, the optimal longevity risk transfer decision with reinsurance and a longevity bond is treated. Numerical evidences show the practical feasibility of the model.

MSC:

91G05 Actuarial mathematics
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