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Liability-Driven Investment in Longevity Risk Management

In: Optimal Financial Decision Making under Uncertainty

Author

Listed:
  • Helena Aro

    (Finnish Financial Supervisory Authority)

  • Teemu Pennanen

    (King’s College London)

Abstract

This paper studies optimal investment from the point of view of an investor with longevity-linked liabilities. The relevant optimization problems rarely are analytically tractable, but we are able to show numerically that liability driven investment can significantly outperform common strategies that do not take the liabilities into account. In problems without liabilities the advantage disappears, which suggests that the superiority of the proposed strategies is indeed based on connections between liabilities and asset returns.

Suggested Citation

  • Helena Aro & Teemu Pennanen, 2017. "Liability-Driven Investment in Longevity Risk Management," International Series in Operations Research & Management Science, in: Giorgio Consigli & Daniel Kuhn & Paolo Brandimarte (ed.), Optimal Financial Decision Making under Uncertainty, chapter 0, pages 121-136, Springer.
    • Handle: RePEc:spr:isochp:978-3-319-41613-7_5
    DOI: 10.1007/978-3-319-41613-7_5
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    Cited by:

    1. Blake, David & Cairns, Andrew J.G., 2021. "Longevity risk and capital markets: The 2019-20 update," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 395-439.

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