Mortality options: the point of view of an insurer (Q2656991)

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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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