Statistical emulators for pricing and hedging longevity risk products
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Publication:320257
DOI10.1016/J.INSMATHECO.2016.02.006zbMATH Open1369.91095arXiv1508.00310OpenAlexW1838704663MaRDI QIDQ320257FDOQ320257
Authors: J. Risk, Michael Ludkovski 
Publication date: 6 October 2016
Published in: Insurance Mathematics \& Economics (Search for Journal in Brave)
Abstract: We propose the use of statistical emulators for the purpose of valuing mortality-linked contracts in stochastic mortality models. Such models typically require (nested) evaluation of expected values of nonlinear functionals of multi-dimensional stochastic processes. Except in the simplest cases, no closed-form expressions are available, necessitating numerical approximation. Rather than building ad hoc analytic approximations, we advocate the use of modern statistical tools from machine learning to generate a flexible, non-parametric surrogate for the true mappings. This method allows performance guarantees regarding approximation accuracy and removes the need for nested simulation. We illustrate our approach with case studies involving (i) a Lee-Carter model with mortality shocks, (ii) index-based static hedging with longevity basis risk; (iii) a Cairns-Blake-Dowd stochastic survival probability model.
Full work available at URL: https://arxiv.org/abs/1508.00310
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Gaussian processeskriginglongevity risklife annuitiesstatistical emulationvaluation of mortality-contingent claims
Mathematical geography and demography (91D20) Applications of statistics to actuarial sciences and financial mathematics (62P05)
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Cited In (9)
- A machine learning approach to adaptive robust utility maximization and hedging
- Sequential design and spatial modeling for portfolio tail risk measurement
- Machine learning with kernels for portfolio valuation and risk management
- Using bootstrapping to incorporate model error for risk-neutral pricing of longevity risk
- Pricing longevity risk with the parametric bootstrap: a maximum entropy approach
- Sensitivity analysis with \(\chi^2\)-divergences
- A nonparametric sequential learning procedure for estimating the pure premium
- Deep learning for limit order books
- An empirical comparison of some experimental designs for the valuation of large variable annuity portfolios
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