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Understanding, Modeling and Managing Longevity Risk: Key Issues and Main Challenges

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Author Info

  • Pauline Barrieu

    ()
    (Department of Statistics - London School of Economics)

  • Harry Bensusan

    (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS : UMR7641)

  • Nicole El Karoui

    ()
    (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS : UMR7641)

  • Caroline Hillairet

    ()
    (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS : UMR7641)

  • Stéphane Loisel

    ()
    (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429)

  • Claudia Ravanelli

    ()
    (Swiss Financial Institute - École Polytechnique Fédérale de Lausanne)

  • Yahia Salhi

    ()
    (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429, CERDALM - SCOR Global Life)

Abstract

This article investigates the latest developments in longevity risk modelling, and explores the key risk management challenges for both the financial and insurance industries. The article discusses key definitions that are crucial for the enhancement of the way longevity risk is understood; providing a global view of the practical issues for longevity-linked insurance and pension products that have evolved concurrently with the steady increase in life expectancy since 1960s. In addition, the article frames the recent and forthcoming developments that are expected to action industry-wide changes as more effective regulation, designed to better assess and efficiently manage inherited risks, is adopted. Simultaneously, the evolution of longevity is intensifying the need for capital markets to be used to manage and transfer the risk through what are known as Insurance-Linked Securities (ILS). Thus, the article will examine the emerging scenarios, and will finally highlight some important potential developments for longevity risk management from a financial perspective with reference to the most relevant modelling and pricing practices in the banking industry.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number hal-00417800.

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Date of creation: 2012
Date of revision:
Publication status: Published, Scandinavian Actuarial Journal, 2012, 2012, 3, 203-231
Handle: RePEc:hal:journl:hal-00417800

Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00417800
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Web page: http://hal.archives-ouvertes.fr/

Related research

Keywords: Longevity Risk ; securitization ; risk transfer ; incomplete market ; life insurance ; stochastic mortality ; pensions ; long term interest rate ; regulation ; population dynamics;

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Cited by:
  1. Harry Bensusan & Nicole El Karoui & Stéphane Loisel & Yahia Salhi, 2012. "Partial Splitting of Longevity and Financial Risks: The Longevity Nominal Choosing Swaptions," Working Papers hal-00768526, HAL.
  2. Helena Aro & Teemu Pennanen, 2013. "Liability-driven investment in longevity risk management," Papers 1307.8261, arXiv.org.
  3. Bohm, Thomas & Waldvogel, Felix, 2012. "Etablierung eines außerbörslichen Kapitalmarktes für das Langlebigkeitsrisiko," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2012-02, University of Bayreuth, Chair of Finance and Banking.
  4. Yahia Salhi & Stéphane Loisel, 2012. "Basis risk modelling: a co-integration based approach," Working Papers hal-00746859, HAL.
  5. D’Amato, Valeria & Haberman, Steven & Piscopo, Gabriella & Russolillo, Maria, 2012. "Modelling dependent data for longevity projections," Insurance: Mathematics and Economics, Elsevier, vol. 51(3), pages 694-701.

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