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Longevity: a new asset class

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  • David Blake

    (Cass Business School)

Abstract

A little over a decade ago, a new asset class emerged, one linked to longevity risk, i.e., unanticipated changes in life expectancy. The Life Market has two segments: a macro-segment with assets linked to groups of lives, such as members of a pension plan or a book of annuitants; and a micro-segment with assets linked to individual lives, such as life settlements. For the market to become global, certain market requirements need to be satisfied, such as understanding the causal factors underlying longevity and the development of market indices and mortality forecasting models. The government has a role in contributing to the development of the market, as do pricing models. By addressing these issues, as well as understanding the needs of investors better, the asset class can become global, by attracting new groups of investors seeking returns that are uncorrelated with existing financial instruments.

Suggested Citation

  • David Blake, 2018. "Longevity: a new asset class," Journal of Asset Management, Palgrave Macmillan, vol. 19(5), pages 278-300, September.
    • Handle: RePEc:pal:assmgt:v:19:y:2018:i:5:d:10.1057_s41260-018-0084-9
    DOI: 10.1057/s41260-018-0084-9
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    References listed on IDEAS

    as
    1. Kevin Dowd & David Blake & Andrew Cairns, 2010. "Facing up to uncertain life expectancy: The longevity fan charts," Demography, Springer;Population Association of America (PAA), vol. 47(1), pages 67-78, February.
    2. David Blake & Tom Boardman & Andrew Cairns, 2014. "Sharing Longevity Risk: Why Governments Should Issue Longevity Bonds," North American Actuarial Journal, Taylor & Francis Journals, vol. 18(1), pages 258-277.
    3. Andrew Cairns & David Blake & Kevin Dowd & Guy Coughlan & David Epstein & Alen Ong & Igor Balevich, 2009. "A Quantitative Comparison of Stochastic Mortality Models Using Data From England and Wales and the United States," North American Actuarial Journal, Taylor & Francis Journals, vol. 13(1), pages 1-35.
    4. Hunt, Andrew & Blake, David, 2015. "Modelling longevity bonds: Analysing the Swiss Re Kortis bond," Insurance: Mathematics and Economics, Elsevier, vol. 63(C), pages 12-29.
    5. Willets, R. C., 2004. "The Cohort Effect: Insights and Explanations," British Actuarial Journal, Cambridge University Press, vol. 10(4), pages 833-877, October.
    6. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    7. Andrew J. G. Cairns & David Blake & Kevin Dowd, 2006. "A Two‐Factor Model for Stochastic Mortality with Parameter Uncertainty: Theory and Calibration," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(4), pages 687-718, December.
    8. Blake, David & Dowd, Kevin & Cairns, Andrew J.G., 2008. "Longevity risk and the Grim Reaper's toxic tail: The survivor fan charts," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 1062-1066, June.
    9. Blake, D. & Cairns, A. J. G. & Dowd, K., 2006. "Living with Mortality: Longevity Bonds and Other Mortality-Linked Securities," British Actuarial Journal, Cambridge University Press, vol. 12(1), pages 153-197, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Tan, Ken Seng & Weng, Chengguo & Zhang, Jinggong, 2022. "Optimal dynamic longevity hedge with basis risk," European Journal of Operational Research, Elsevier, vol. 297(1), pages 325-337.
    2. Chen, An & Li, Hong & Schultze, Mark, 2022. "Collective longevity swap: A novel longevity risk transfer solution and its economic pricing," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 227-249.
    3. Benjamin Avanzi & Lewis de Felice, 2023. "Optimal Strategies for the Decumulation of Retirement Savings under Differing Appetites for Liquidity and Investment Risks," Papers 2312.14355, arXiv.org, revised Mar 2024.

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    More about this item

    Keywords

    Longevity risk; Longevity-linked assets; Uncorrelated returns;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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