IDEAS home Printed from https://ideas.repec.org/a/wun/journl/tjev04y2011i4(16)a02.html
   My bibliography  Save this article

Mathematical Models for the Longevity Risk in the Annuity Market

Author

Listed:
  • Iulian MIRCEA

    (The Academy of Economic Studies, Faculty of Economic Cybernetics, Statistics and Informatics, Bucharest, Romania)

Abstract

The markets for longevity derivatives are starting to develop. In last years, many companies have closed the defined benefit retirement plans that they used to offer to their employees. In addition, some governments increased the retirement age by 2 or 5 years to take into account longevity improvements, population ageing and the financing of pension. The insurance industry is also facing some specific challenges related to longevity risk. More and more capital has to be constituted to face this long-term risk, and new regulations in Europe, together with the recent financial crisis only amplify this phenomenon. Hence, it has become more important for insurance companies and pension funds to find a suitable and efficient way to cross-hedge or to transfer part of the longevity risk to reinsurers or to financial markets. In this study, we develop the models of mortality rates and the pricing models of the longevity risk. We make some remarks regarding forecasting mortality rates using Lee-Carter model and own model. Also, we deal with the securitization of longevity risk through the longevity bonds (the straight bonds), the interest are split between the annuity provider and the investors depending on the realized mortality at each future time by a Special Purpose Company (SPC).

Suggested Citation

  • Iulian MIRCEA, 2011. "Mathematical Models for the Longevity Risk in the Annuity Market," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 4(4(16)), pages 205-210.
    • Handle: RePEc:wun:journl:tje:v04:y2011:i4(16):a02
    as

    Download full text from publisher

    File URL: https://tje.uvt.ro/index.php/tje/article/download/121/pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    stochastic mortality model; Lee-Carter model; longevity risk; straight bonds;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wun:journl:tje:v04:y2011:i4(16):a02. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Romeo Margea (email available below). General contact details of provider: https://edirc.repec.org/data/feuvtro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.