Mortality options: the point of view of an insurer (Q2656991)
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English | Mortality options: the point of view of an insurer |
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Mortality options: the point of view of an insurer (English)
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17 March 2021
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The authors consider a life insurer in a discrete time framework who is able to buy a securitization product to hedge mortality. Two cohorts are considered: one underlying the securitization product and one for the portfolio of the insurer. In a general setting, the authors show that there exists a unique strategy that maximizes the insurer's expected utility from terminal wealth. Numerical illustrations of the approach are demonstrated in the context of a Gompertz-Makeham model, where the realized survival probabilities can fluctuate moderately within an \(\epsilon\)-corridor, as well as in the context of a toy model for mortality shocks. In both examples the insurer can hedge longevity risk by trading in a survival bond.
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mortality option
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optimal strategy
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maximal utility
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exponential utility
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longevity risk
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mortality shocks
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