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Longevity Greeks: what do insurers and capital market investors need to know? (English) Zbl 1465.91099

The authors derive three longevity Greeks – delta, gamma, and vega – on the basis of an extended version of the Lee-Carter model that incorporates stochastic volatility. The properties of each longevity Greek is studied and the levels of effectiveness that different longevity Greek hedges can possibly achieve are estimated.
The results reveal several facts. For example, in a delta-vega hedge formed by \(q\)-forwards, the choice of reference ages does not materially affect hedge effectiveness, but the choice of times to maturity does. These facts may aid insurers to better formulate their hedge portfolios and issuers of mortality-linked securities to determine what security structures are more likely to attract liquidity.

MSC:

91G05 Actuarial mathematics
62P05 Applications of statistics to actuarial sciences and financial mathematics

Software:

LifeMetrics; FinTS
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References:

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