Natural Hedging of Longevity Risk with Mortality Key Rate Durations
Abstract
Unanticipated increase in life expectancy (longevity risk) of policy holders expose annuity providers to financial risk over a period of time. In order to measure the sensitivity of the actuarial present value to shifts in mortality rates for two portfolios for USA male: the Lee-Carter model is used to forecast future mortality rates with mortality data from mortality.org; and the term structure of interest rates are estimated using the Nelson-Siegel-Svensson model. Mortality key rate durations are proposed as a measure of the sensitivity of the actuarial present value due to the nonparallel shifts in mortality rates.
The objectives for this thesis are to determine the best weight of surplus of life insurance to use for hedging against longevity risk, and ascertain how the mortality key rates periods should be selected for the two portfolios in order to have weighted surplus greater than zero using the natural hedging approach.
Description
Keywords
Economics--Finance, Statistics, Applied Sciences
Citation
Sam, C. (2016). Natural Hedging of Longevity Risk with Mortality Key Rate Durations (Master's thesis, University of Calgary, Calgary, Canada). Retrieved from https://prism.ucalgary.ca. doi:10.11575/PRISM/27062