The role of longevity bonds in optimal portfolios
AbstractA longevity bond pays coupons which are proportional to the survival rate of a given population. In such a way the longevity risk becomes hedgeable on the financial market. In our model there are: (i) a longevity bond as a derivative on the population survival rate, (ii) a bond as a derivative on the stochastic instantaneously riskless interest rate, and (iii) a stock. The investor maximizes the expected (CRRA) utility of his intertemporal consumption. In such a framework we demonstrate that the amount of wealth invested in the longevity bond reduces the portfolio weight of the bond without affecting neither the weight of the stock nor the weight of the riskless asset.
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Bibliographic InfoPaper provided by University of Brescia, Department of Economics in its series Working Papers with number 0601.
Date of creation: 2006
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- NEP-ALL-2006-02-12 (All new papers)
- NEP-CFN-2006-02-12 (Corporate Finance)
- NEP-FMK-2006-02-12 (Financial Markets)
- NEP-UPT-2006-02-12 (Utility Models & Prospect Theory)
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